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Equity Crowdfunding Platforms: How Many Will There Be? (expert Faq)
By richardsobers906, 30.11.2013, 04:45

New Equity Crowdfunding Rules Could Change Startup Game

The businesses that are most likely to benefit from equity-crowdfunding are those that find it challenging to locate capital through other means. For instance, entrepreneurs located in rural areas, first-time entrepreneurs that have yet to establish the right connections, or businesses pushing a value proposition that is somewhat ambiguous or unclear.

The Pros and Cons of Equity Crowdfunding

The more deal flow we have, the more value we create for investors. National borders are kind of arbitrary when it comes to investing and startups offline, people tended to invest close to home, but on the internet why would you limit it to just one country? Scale isnt the only advantage, though. Under European law, EU member states can allow the raising of up to 5 million ($6.8 million) through equity crowdfunding platforms but they can also set the limit as low as 100,000, which many such as France still do. The UK set its cap at 5 million and, as thats where Seedrs is based, thats its limit across the EU. The individual country rules arent the ones that apply in our case everything we do is under UK law, Lynn said. It gives us a huge advantage. Seedrs said on Monday that it now has more than 25,000 registered investors, and that it has funded 48 early-stage deals since it opened shop. In a case of crowdfunding Inception, Seedrs also said it would be raising 500,000 ($810,000) for itself, using itself, offering an 8.81 percent equity stake (presumably to be held by itself as the nominee) in return.

Seedrs becomes first equity crowdfunding platform to operate across Europe

"Crowdfunding is a high risk investment," says Jason Best, co-founder of Crowdfund Capital Advisors . "You only want to use a very small portion of investible cash in crowdfunding." There are other things for the public to keep an eye out for, Best adds. First off, anyone offering non-accredited donors equity right now is not playing by the rules. These rules have been proposed, yes, but that does not mean equity crowdfunding has been implemented. There will be a 90-day waiting period where members of the public can comment on the proposed rules, then another 90 to 120 days for the SEC to review the comments and amend the rules. (There is also a one- to two-month lag time following the vote.) This means equity crowdfunding won't be an actual option for another nine months or so, says Best. When the rules are formally approved and implemented, investors will want to be sure they are investing through approved crowdfunding portals. There are thousands of crowdfunding domain names out there, and investing through an established, safe platform will be key. These concerns don't take away from the SEC's progress on Wednesday.

) Read what other mentors say about crowdfunding. Even the smartest and most hooked-in investment professionals strike out with most of the startups in their portfolios.But capitalizing a public-facing business through crowdfunding has the potential to lower investment risk for both issuer and investor because crowd patronage offers market validation and loyalty advantages that traditional funding mechanisms cant provide. We see that perks-based funding already generates strong loyalties, and by adding financial ownership to emotional ownership, crowd investing might amplify these effects.

Danae Ringelmann: Crowdfunding Unleashes A Different Segment of the Economy

But crowdfunding might be more trouble than its worth for tech startups who want to build a large business rather than a consumer product. For starters, venture capital firms and angel investors will be less interested in a company if it comes attached with hundreds of crowdfunding investors, according to John Taylor, head of research for the National Venture Capital Association (NVCA). If an entrepreneur walked into a news venture capital firm with a great idea, or even a working prototype, but pointed out that they had 300 shareholders, that would probably be the kiss of death, Taylor said.

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