In 2013, the implementation of investment crowdfunding stands to democratize access to capital for startups and small businesses. For investors of all economic classes it represents the right to accept risk, and invest in the businesses they believe in. We’re at a critical junction in our realization of this right, waiting for the SEC & FINRA to promulgate rules that will either support or stifle the industry. With each missed deadline, and each new excuse from the SEC, I’m becoming increasingly worried that we are losing ground. And then there are the market incumbents who fear the openness, transparency and collaboration that will challenge their status-quo. Rest assured, they’re putting up a fight.
And so a polluted rhetoric has emerged. It asserts that investment crowdfunding will be a cesspool of fraud, certain to bamboozle layman investors out of their hard-earned money. It proclaims crowdfunding represents a grave threat to investors, set to open a “floodgate of fraud.” But it completely ignores the data; completely disregards the truth. The truth is: investment crowdfunding works. And using data, I’ll prove it.
The Australian Small Scale Offerings Boards (ASSOB): Equity Crowdfunding
ASSOB, an equity CF platform in Australia, is the world’s oldest and most successful crowdfunding platform. It has facilitated $129,205,578 in investments – from both accredited an non-accredited investors – since going live in 2007. Of the 176 companies that have received investment, 152 are still operational (86%). 63% of investments have been made by non-accredited investors. Since inception, not a single incidence of fraud.
Crowdcube: Equity Crowdfunding
Crowdcube is a UK-based equity CF platform that has facilitated ~$6mm in funding for 24 companies since being founded in February 2011. These companies include pre-revenue startups as well as existing businesses looking for growth capital. Only time will tell how these investments perform but were funded by the Crowd without fraud. Also worth noting is how discerning the crowd has been towards crowdfund investing: the success rate of fundraises has been less than 10%. Compare this to Kickstarters’ success rate of ~44%.
FundingCircle: Debt Crowdfunding
FundingCircle is a debt CF platform in the UK that has facilitated over $80,000,000 in investments since launching in August 2010. They have originated loans – ranging in size from $8,000 to $800,000 – for over 1,000 small businesses. Hinting at just how powerful FundingCircle can be, on October 4 they reported that two $80,000 loans were funded in 28 minutes.
Let’s roll through just a few more. UK-based Seedrs is blazing the trail for funding promising idea-stage startups; in its latest funded deal individuals invested as little as $16, and as much as $36,000. Their European comrade in the Netherlands, Symbid, has funded projects as diverse as translating a popular Dutch book into English to the WakaWaka Light, an innovative solar technology that is bringing light to millions. While not speaking to non-accredited investors (yet), CircleUp is a disruptive equity-platform in the U.S. proving that quality due-diligence is not too expensive, contrary to the position of some. They accept only 2% of applicants for their platform and in the last four months have funded four Consumer Product companies to the tune of $2.8 million. And then there is Fundrise, a DC-based platform that said screw waiting for the Bureaucrats and practically moved earth to legally crowdfund a real estate project through a Reg A exemption (only legally allowed to market to investors in Virginia and District of Columbia). They’re 70% of the way to their target of $325,000; 137 local investors, and counting, have been able to invest as little as $100 in a project they believe in. But for Fundrise to serve local investors everywhere, they need a JOBS Act that works – not one that has been crippled by erroneous and misplaced fears of fraud.
And this is only the beginning. It’s not to say the journey will be easy, or short – it won’t – but the data can’t be refuted: investment crowdfunding works.
I’ve published my source research. A direct link can be found here. Let’s make this data ubiquitous. Open and accessible to all, and most importantly: impossible to ignore. Let’s encourage critical debate, but for once, definitively bury the notion that investment crowdfunding does not work.