December 9, 2015
Back in October the SEC voted on and decided to implement Title III of the JOBS Act, which brings non accredited investors full force into the equity crowdfunding world. It was a massive decision that effectively sets the stage for crowdfunding to continue the booming trend of growth for at least the next three to five years that will exist on top of the market for accredited investors already in place.
CEO of Crowdfunder.com, Chance Barnett, wrote an article about the legislation for Forbes when it was passed because he’s “had a front row seat as a participant in JOBS Act legislation and the long delayed regulatory rulings”. As he says, the public has been waiting on Title III for over three years as the SEC failed time and again to finalize the rules.
“Crowdfunding was already expected to surpass VC in 2016 at $34B a year in total crowdfunding online, across all types of crowdfunding. By bringing in a new class of investors with Title III, we can expect further growth of the equity market as venture capital continues to move online,” says Barnett in the Forbes piece.
Part of the reason he’s so invested in the legislation is that Crowdfunder.com itself is an equity platform, but beyond that he’s got two startups that are going to be using Title III as well. Glowing Plant and Chemistry Spirits both opened crowdfunding campaigns and are interested in Title III on Crowdfunder the second it becomes available.
No doubt about it, it’s a big deal. And while I could tell you why, I figured it’s better to hear it directly from Barnett himself. We were able to sit down with him and have him answer some of our follow up questions regarding Title III:
What does Title III of the JOBS Act getting passed mean for startups in 2016?
Chance Barnett: This marks the first time in over eighty years that everyday citizens will have access to investing in early stage companies. The barriers everyday citizens have experienced in participating in early stage private investing are slowly but surely going away.
In the 1980’s, you had to call your stockbroker if you wanted to purchase shares on the public markets, and pay them big fees just for taking your order. But then we saw innovative and disruptive firms like eTrade come along and disrupt the status quo — allowing retail investors direct access to data, information, and trading on their own.
We’re seeing the same shift for investing in startups today that we saw in the 1980’s for transactions in the public markets. Wealthy institutions, VCs, and Angels have had exclusive access to investing in high-growth startups, but with Title III we see the beginning of a more level playing field for information and access for everyday investors to early stage private investments.
I anticipate that the next evolution in VC and angel investing will be realized in the form of equity crowdfunding platforms serving as Venture Capital firms, as investing in startups moves online and is opened up to the general public.
This isn’t to say that VC and angel investing as we know it will die. Rather, a hybrid model will emerge where VC’s and Angels will lead and set the terms at which they want to invest, and then leverage equity crowdfunding platforms for distribution to a much larger set of investors.
When startups raise funding early on, they usually look for investors who will add value and not just money. Will startups using title III still want to raise from value added investors or will this now be a mix of value and money?
Barnett: This is correct, startups raising money traditionally will look for larger strategic investors who can add value outside of the capital raised. With Title III, startups are acquiring something potentially even more valuable outside of the capital, lifelong evangelists and customers. Now everyday people will have a vested interest in the success of your company.
I foresee startups still looking to close larger strategic investors into their round and then look to activate the crowd through Title III.
Where do you see the future of equity crowdfunding in five years?
Barnett: In five years, I see equity crowdfunding and venture capital converging to provide more scalable fundraising solutions for startups. This is what we are looking to accomplish at Crowdfunder where we are crowdsourcing venture capital to activate an entirely new community of investors while providing capital to early-stage companies.
The stage is set for equity crowdfunding to see exponential growth over the next 3-5 years as startup investing goes mainstream and Crowdfunder is looking to ride this wave of momentum we’re currently seeing in the space.
Anything else you want to share about Crowdfunder?
Barnett: After three years of delays by the SEC regarding Title III, we’re very excited to see the rules finalized and implemented. This is a big win for both entrepreneurs and investors who were previously shut out from startup investing.
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