Excellent Wall Street, (re)Emergence of Crowdfunding & Family Offices

The Occupy Wall Street Movement (the 99% movement) made sense to me. I mean, I supported the federal governments’ bailout of the banks yet decried the banks’ (many of whom I have either deposited checks into or taken a paycheck from) willingness to accept that bailout (this is free market capitalism, for Keynesian sakes!!!). It is, however not as simple as that and the older I get and the higher I go, the more I become, unfortunately, versed in the intricacies of “grey matter” - of that almighty green matter when meshed flesh and blood human beings.

For example, while “hedge fund” and “venture capital” are increasingly becoming taboo if not negative connotations within our industry, family offices are in vogue. Since 2013, the wealthy have been flocking to family offices to manage their portfolios.

In 2015, it is intriguing to see the rise of family offices and the sudden shift from hedge funds and venture capitals with no fundamental shift in the moral morass of our capital markets. Billionaire hedge fund managers as George Soros or Stanley Druckenmillner have turned their hedge funds into family offices. If we simply change structure without fundamentally addressing the “moral hazards” of 2008 and before, won’t we just repeat history? Subprime loans are still helping many a home owner avoid high monthly payments on their mortgage. What happens when federal interest rates go up to 2007 levels again? But you can read more about family offices from the experts here.

I love the idea of crowdfunding and good men and women orchestrating sound entrepreneurial business – the idea of easing regulations for accredited investors to put capital into investment vehicles without being encumbered by Dodd/Frank and regulations. Yeah, I'm excited about these Millennials and future so-called ‘digitals’ and everything they can do for the world with business. Community banks, capital markets and investment conferences are arteries of capitalism and recesses of free market trade during the Great Recession of the 21st Century and our subsequent recovery. Capital and ideas are the metaphorical nutrients and blood.

With the Jobs Act of 2012, many of the provisions allowing non-accredited investors from crowdfunding are a long ways from being passed – with the SEC and FINra slow stepping to enact legislation proposed. Maybe such provisions (pertaining to unaccredited participation in crowdfunding) are 9 months or a couple years off from being passed. Perhaps, never. These provisions and crowdfunding will factor largely as hot button issues of the 2016 presidential race.

So, crowdfunding in all of its formations- solicitation, accredited and unaccredited- is here to stay. According to the Tabb Group, the crowdfunding market will hit $17 billion in 2015 after having been forecasted to touch $10 billion in 2014 with more than 1000 new platforms formed. Regulation A is securities law that allows companies to raise money from investors online. “Accredited” investors ($200 thousand in annual income or $300 thousand in combined household income or $1 million in assets) provide a percentage of this so-called crowd-sourced funding and, by projections as little as $28 billion and as much as $50 billion in 2015.

Accredited” investors ($200 thousand in annual income or $300 thousand in combined household income or $1 million in assets) provide a percentage of crowd-sourced funding and, by projections, as little as $28 billion and as much as $50 billion in 2015

So, crowdfunding in all of its formations- solicitation, accredited and unaccredited- is here to stay. According to the Tabb Group, the crowdfunding market will hit $17 billion in 2015 after having been forecasted to touch $10 billion in 2014 with more than 1000 new platforms formed. Regulation A is securities law that allows companies to raise money from investors online. “Accredited” investors ($200 thousand in annual income or $300 thousand in combined household income or $1 million in assets) provide a percentage of this so-called crowd-sourced funding and, by projections as little as $28 billion and as much as $50 billion in 2015.

As a tenured banker and business leader, I have believed in and served the ‘excellent’ Wall Street. Excellent Wall Street consists, in part, of capital market formation, the micro-cap sector, the legitimate crowdfunding (accredited v. non-accredited), entrepreneurs and small businesses which make up 60-70% of all American job creation. Title III of the JOBS Act has essentially democratized fundraising, improving access to capital for entrepreneurs and startups by providing legislation around the online mechanism for this sort of fundraising.

Cutting edge companies as Kickstarter, Indeigogo and Lending Club have blazed a trail and will continue to benefit from the new general solicitation rules enacted last year. Kickstarter, for example, has raised nearly $500 million for over 10,000 projects. According to their site, since Kickstarter’s launch in April of 2008, over $1 billion has been pledged by more than 7 million people, funding more than #77,000 projects.

The crowdfunding phenomenon will continue to make headway across industries, including real estate where companies as Realty Mogul and Fundrise create online platforms that give investors the ability to directly in commercial real estate and other projects. Investors can participate in various investment properties with an investment as small as $5000. Look for companies as California’s Capital Cove to enter into this market in 2015.

Following the work of thought leaders as David Drake (Forbes and Huffington Post columnist), Scott Purcell (CEO of Fund America Crowdfunding) , Zak Cassady-Dorion (Partner at Crowdfund Capital Advisors), Rodney Sampson (Founder of Opportunity Hub) or Joy Schoffler (Principal of Leverage PR) will certainly inform the conversation as it develops and develops a new generation of entreprenuers and success stories as Facebook, Google and Ben and Jerry's.

Excellent Wall Street continues to be under its most intense scrutiny and economic reformation since the economic collapse in 2008 and subsequent passage of The Dodd–Frank Wall Street Reform and Consumer Protection Act. We essentially exist within the Charles Dickensonian mantra of -

“ It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair …”

Not since the Great Depression and institution of the Glass-Steagell Act (the Banking Act of 1933), the law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and introduced banking reforms, has our industry been under such reform.

Frankly, we need more fundamental sound reform (and don't whine! We got ourselves into the bloody mess). We are at the cusps of ongoing technological, sustainability and energy revolution which will be the next bull market. I am confident. I see 2018, post 2106 presidential election clearly. According to the Milken Institute there is at least $30 trillion sitting on the sidelines globally. According to Federal Reserve Chair Janet Yellen in 2014 the disparity between rich and poor is at it’s highest levels in the last 100 years. So, again, not since FDR and the Great Depression, not since Charles Dicken’s best and worse of times.

Since 2008, I have watched many broker dealers, investment banking consultants, angel investors and venture capitalists thwarted and ultimately defeated by the sea of change, reform and regulation, we are currently weathering. These are the natural ebbs and flows of capitalism, moved by the natural polarities of greed and fear. We are the Excellent Wall Street Movement and it is imperative that we take our cues from our best intentions to help out the little guy, innovator and dreamer- the entrepreneur.

So, as we begin 2015, chockfull of enthusiasm, resolve and energy - let's be mindful of the ultimate goal of Wall Street - free formation of capital to build business that will continue to lead the world. Either we do it right, or begin again... again. And, again.

What Millennials and Gen. X’ers need to do is take a personal stake in doing each transaction, every calculation within the morass of conscientious and ethical business. Sound corny? Yeah, the Great Recession is. Making the almighty dollar and doing business the right way don’t have to necessarily be incompatible. Gordon Gekko (“Greed is Good”) was a fictional character in Oliver Stone’s 20th century Wall Street. Would be nice if Martin Scorsese’s’ Wolf of Wall Street was too.