Crowdfunding: Setting A Global Standard

“Old School financial services firms and even modern FinTech platforms will need to find new ways to employ technology and regulations in order to accommodate an increasingly influential retail clientele. New leaders will rise. Some unexpected frontrunners will fall. The businesses that will best be able to oblige the retail customer, adapt to these regulatory changes, and penetrate retail’s $14+ trillion retirement capital will prevail. But of all of the victors in this new democratized investing landscape, by far the greatest winners of all will be the American people.”

The quote above is from the groundbreaking white paper titled The Renaissance of the Retail Investor and its Monumental Impact on Marketplace Lending, Equities Crowdfunding, and the U.S. Retirement System  by Dara Albright, James A. Jones, and Kim Wales. The authors realized what potential the JOBS Act and crowdfunding brings the the United States. This white paper has inspired me to look into the global crowdfunding initiatives and a United World. Let's take it from the beginning...

April 5th, 2012: Obama signs the Jumpstart Our Business Startups (JOBS) Act in order to ultimately provide a new avenue for small businesses and startups to access capital.

Small businesses account for 99.7% of the businesses in the U.S. and have a lot working against them. During 1993-2011, 64% of net new jobs created, 11.8 of 18 million, came from small businesses and startups. Pretty important considering a small fluctuation in unemployment rates ignites a finger-pointing war between political political parties, further splitting our already divided country. 

Wealthy people (accredited investor defined) already have the ability to invest in small businesses...what makes the JOBS Act different? Allows the average person (non-accredited, you and I!) to invest in the next Google, Amazon, or Tesla! It does away with the "Blue Sky law" which prohibited businesses from soliciting investments;  created regulations making it easier (more affordable) for businesses to register for an equity offering; and expanded upon U.S. securities regulation infrastructure in order to support higher volumes of investors. These are some very important changes considering only 3-5% of investors in the U.S. are "accredited." 

May 16th, 2016: The Securities and Exchange Commission finally, after 4 years, developed regulations for crowdfunded securities! Companies, small and large, now have the opportunity to issue stock to the average American instead of personally guaranteed small business loans at the bank! Entrepreneurs can now advertise that they are offering an equity raise in order to start, continue, or expand business. This democratizes investing by empowering the "retail investor" to help choose which businesses will grow the best with their hard earned cash. Where do small businesses go to do crowdfunding?

Equity Crowdfunding Gone Global

Kickstarter, Indiegogo, and GoFundMe are among the largest non-equity crowdfunding platforms in the U.S. and since 2009 have raised over $4 billion through reward and donation based offerings. Global equity crowdfunding has seen gigantic growth year over year with $880 raised in 2010 fast-forwarding to 2014 with $16.2 billion and $34.4 billion in 2015. 2016 is expected to see $100 billion or more. The United States is a large part of this growth, but crowdfunding has caught on in other countries including the UK, China, Australia, India, Turkey and many more. 

Not so fast, there are platforms allowing small businesses to issue equity, but the United States does not quite have a designated primary market for crowdfunded securities to originate. What about after shares are purchased by investors, where do they sell shares to make a profit/loss? They don't! A secondary market has not yet emerged in the U.S., but CFX Investing may be the first. CFX Markets is working to be the first secondary market for alternative investments, which includes crowdfunded securities! 

Setting A Global Standard

The wealthy have always done a great job of creating the rules for everybody to play by, but the world will continue to develop as technology infrastructure is established and built upon in smaller less developed countries. These countries don't always have a strong government to support small businesses - why not turn toward an international equity market if capital isn't accessible in your country? Yes there is going to be a huge problem with regulation considering every country has their own securities regulations, some have none. I understand how hard it is Crowdfunding's progress ALONE proves that people are much stronger working together when they are willing and able. If crowdfunding continues to move abroad, below is a concept I would love to see happen, crowdfunding being the cohesive element between many diverse countries, finally setting a global standard. 

This is a simplification of what our primary and secondary crowdfunding markets are starting to look like and may eventually look like. The business registers with a funding portal (FENRA & SEC registered) who issues shares of that business to "the crowd," effectively creating a primary market. The crowd then trades shares with other investors within causing the stock price to fluctuate in the secondary market.  IF only it was this smooth right now. 

The Global Secondary Market

I've added a 3rd market to the diagram which I believe will be like a melting pot of secondary markets from various countries. This might seem weird and far too complicated considering every country has their own unique way to regulate securities. However, I have recently discovered what may just be the beginning of this colossal Global Secondary Market. Cadia Startup Exchange is a Bulgarian based company gearing up to act as an all-in-one funding portal and ultimately the first global secondary market for alternative investments. CadiaSE will act as the funding portal registering companies to issue initial shares in the primary market; providing consulting & mentoring for startups; interact with investors (investor relations); and will allow investors to trade shares on the platform (secondary market). 

CadiaSE already has Official Representatives from India, Columbia, the UK, Servia, Spain, the Netherlands, and Belgium. The company says it's not currently geared to handle securities services for the United States yet, but that they may be interested. With globalization moving faster by the year, this may be a reality in the coming years.