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Are equity crowdfunding platforms failing?

The JOBS Act, which introduced the regulatory framework for these platforms to operate, was a flop as it has over regulated the space making it difficult for these platforms to operate. These hurdles contribute to adverse selection which impacts on the quality of opportunities that are being offered. Do you think equity crowdfunding platforms will survive?

10 Replies

Tenshi Kitsu (木津天使)
1
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Founder / Co-Director at
I had hoped equity crowdfunding platforms would eventually morph into something like a combination of FounderDating andY Combinator.

I would put a dose of MeetUp if it was redesigned as a Collaborative Project Managment Platform.
James Bailey
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James Bailey Entrepreneur • Advisor
Owner at My Designs 6113 Global Connection
Like any new way of doing business. It will take a minute to work out the bugs. The part that I seem to look at is the regulations(they say) are there to protect the investor. But it seem to me that Wall Street has had some downturns and rebounds. So lets hope the government rides this one out and gives it some breathing room. As other country's figure out their EguityCrowdfunding platforms.


I hope to jump on the bandwagon when I'm ready.....just sayin'

Richard Awni
1
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Richard Awni Entrepreneur
Project Management | Clean Energy | Solar | Go-To-Market | Emerging Technology | Branding I Marketing I Non Profit I HR
Reg A seems to be very interesting. Look that up.
Martin Omansky
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Martin Omansky Entrepreneur
Independent Venture Capital & Private Equity Professional
They won't survive without massive changes. Sent from my iPhone
Val D'Souza
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Val D'Souza Advisor
CEO, Catalyst Apps
Has anyone actually tried going through the process? What's been your experience? Also, it's important to distinguish which level of funding you're referring to. If you're looking for funding below 1M, the rules aren't too bad at all. I think the bigger question is that once you're on the platform, is there any exposure to the offer? As far as I can tell, the answer is a big fat no. None of them come close to Angel List as far as exposure to potential investors. In short, you better have your own following to actually raise the capital.
Irwin Stein
2
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Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.
I have written about this more than once. Title II of the JOBS Act is working to fund real estate, films and in some other areas; Title III not so much. The problem is not in the regulations but in the fact that the management of the equity crowdfunding platforms have very little experience actually dealing with investors. They don't know what investors want or expect. Equity crowdfunding is a good idea, but if you go to a conference you will hear from consultants and experts who don't know what they are doing. The idea that investors can discern good companies from bad is absurd so the investors are staying away. There is also the idea that you can list your company on a platform and raise funds cheaply. Actually you may need an attorney, accountant and marketing specialists all of whom want to be paid in advance. There is also a fair amount of fraud that know one wants to talk about. The SEC has telegraphed that it will make a big splash in enforcement in the next year. That will turn off a lot of people who might have become investors. Mr. D' Souza: You cannot just put you offer on a platform. You have to sell it and that costs money.
Roger Royse
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Roger Royse Advisor
Royse Law Firm

As proposed by the House, it was an interesting idea but what the Senate did to the law should not happen to a dog.The proposed Fix The CrowdFunding Act is intended to address some of the problems. See

http://royselawblog.com/the-fix-crowdfunding-act/


As it stands today, some of the promoters of CF are credible; some are not.

There are still significant liability issues for anyone who dabbles in the area.

Ben Littauer
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Ben Littauer Advisor
Angel Investor and Management Consultant
I have worked with a couple of ECF platforms and think that they will eventually revolutionize the way seed investment happens. How exactly this will look is anybody's guess. Right now we're in the earliest stages, with several platforms trying different approaches. But the total amount invested is still under $10M, or if it's crossed that barrier it's only recently.

I've got one company planning to raise through a new platform and I'm hopeful that it will be a winner!
Irwin Stein
1
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Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.
Mr. Littauer: The fact that you are "hopeful" that the raise will be successful highlights the main problem with crowdfunding. Only about 30% of the campaigns of all kinds are successful. The rest spend money upfront but don't walk away with funding. In what universe is that efficient? With Title II a platform can at least solicit potential investors. Done correctly, the company gets the money it needs. There are a very few platforms who get it done. The bulk do not. One thing that I learned early on when I worked on Wall Street, is that people do not buy securities, people sell them.
Ben Littauer
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Ben Littauer Advisor
Angel Investor and Management Consultant
Mr Stein,

I agree completely. The regulations are still very tricky to negotiate, and the amount of promotion a platform is allowed to do is strictly limited. However, there are ways around the regs using social media and an engaged community that give me hope that the "selling" of these securities can still happen. The efficiency in this market is clearly not here yet, but I believe it will get there.

The other side of the equation that is still completely unknown is how follow-on funding and/or exits will happen in this space.

I am enjoying watching (and participating in) the birth of a new asset class.
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