October 29, 2015

Wisconsin Offers Preview of Equity Crowdfunding Under JOBS Act

CraftFund was formed to help food and beverage companies raise capital from passionate customers and local residents.  It’s based on the deep-seated conviction that the opportunity to invest should depend on how much one knows about the company, not how much money one makes. From the outset this has required changes in securities laws to allow for democratization of investing.

Therefore, we are excited that the SEC is poised on Friday to release final rules that will finally implement Title III of the JOBS Act and make it possible for companies to sell equity online to the general public nationwide.  Many questions remain regarding the viability of the rule (particularly as it relates to costs for both companies and portals). 

However, the concept of selling equity online to the general public is already happening on a small scale in the states that have passed intrastate laws.  We have had opportunity to experience this first hand at Craftfund having helped create the first state crowdfunding law passed by a state legislature and having launched a few of the first true equity crowdfunding deals in the country.  Here are a few observations from our first year of operating in Wisconsin as we look ahead to crowdfunding nationwide:

Not a pipedream. CraftFund has listed 4 deals its first year of operation. Given that we are attempting to create an entirely new market from scratch, it’s important to put this number in perspective. Take a look across the pond.  Crowdcube, a leading platform in the UK, launched with 10 deals its first year.  That’s 10 deals for an ENTIRE COUNTRY compared to 4 deals in a SINGLE STATE (and there have been many more deals in other states).  As regulations have evolved in the UK the past 3-4 years, Crowdcube has now helped over 300 companies raise more than $170M.  There is no reason why this can’t happen in the U.S. and why the World Bank anticipates the global crowdfunding market will reach $95B by 2025.

Investors are interested.  We have seen demand for ownership experiences in local companies people are passionate about. 500+ Wisconsin residents have registered on the site to date with an average investment ($1,500) 3x the minimum investment amount ($500).  In addition to providing growth capital, investors have served critical roles as brand advocates and strategic partners in helping these young companies grow.

Education is both critical and challenging.  Equity crowdfunding is creating a new investor class.  While this democratization is exciting, the challenge to educate new investors is very real.  Unlike kickstarter, these types of deals require investors to comb through disclosure documents that introduce concepts that are often new to many.  A healthy market will require significant education and providing investors with tools to conduct sound due diligence.

Much more to come on the SEC’s final rules and our future plans to expand beyond Wisconsin.  Regardless though of how the rules turn out, you can be sure equity crowdfunding isn’t going away. The only question is how long it will take the U.S. to catch up.  

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