What’s next for title III equity crowdfunding?

A lot has been said about why equity crowdfunding for non-accredited investors hasn’t caught on. “It’s off to a relatively slow start,” said Dr. Richard Swart, CFO of NextGen Crowdfunding. “It’s actually a slower start than those of us in the industry expected it to grow.”

One of the major culprits for this slow start has been a lack of awareness on the part of both issuers and investors. Title III of the JOBS Act, which empowered non-accredited investors to get into the equity crowdfunding game, was passed back in May 2016. And yet, according NextGen’a Title III issuers listing, only 60 companies have signed up to raise up to $1 million in the first place.

However, issuers shouldn’t be painted as the sole hitch in an otherwise perfect investing system. Potential investors — which, under title III of the JOBS Act, means just about anyone — haven’t exactly been flocking towards equity crowdfunding ,either. According to Swart, the number of people investing  in equity crowdfunding projects under title III is somewhere on the order of 10,000.

The evolution of crowdfunding, then, is largely dependent on bridging this substantial awareness gap, and crowdfunding platforms have already begun to attack the problem from different angles. Bankroll Women, an equity crowdfunding platform for products launched by women entrepreneurs, believes that the answer to greater awareness for equity crowdfunding in general is in-person networking.

On the flip-side, other crowdfunding platforms are betting on better technology to move the needle on title III offerings. According to Newchip, a private equity investment marketplace launching in February 2017,  one of the key components missing from title III equity crowdfunding is an intuitive way to grow communities around campaigns. The company is pitching its marketplace toolbox, which matches users with their interests and helps them create and manage their own portfolios, will fill that need.

“We are building a community around private equity crowdfunding to form an investment marketplace composed of like-minded individuals, who are participating by investing in companies they can believe in,” said Ryan Ràfols, Newchip’s CEO.

Entrepreneurs are also an integral part of the company’s plans. “Kickstarter and Indiegogo became household names because they built something that gave entrepreneurs the tools to raise funding and engage their audiences,” Jason Schenker, Newchip’s CFO, noted. The company hopes its marketplace will help private equity entrepreneurs replicate Kickstarter and Indiegogo’s success. The latter could soon find itself on Newchip’s platform – Indiegogo launched its own equity crowdfunding service on November 15, 2016.

Whatever the strategy of equity crowdfunding platforms to get more issuers and investors onboard, an important stage that all proponents of title III will have to go through is the passage of time. “There was a lot of confusion about what was permissible activity for marketing, which are getting resolved with the FDC,” explained NextGen’s Swart. In addition, “FINRA has been slow-walking some of the platform applications, trying to keep the number of portals down.”

There are other challenges, of course, that simply aren’t resolvable. For instance, investors face a relatively high risk when investing through equity crowdfunding, and much lower risks when they invest in an ETF. Moreover, with roboadvisors growing and new offerings being launched, proactive equity crowdfunding is in danger of becoming a marginalized form of investment.

Still, if title III crowdfunding campaigns are successful in growing and maintaining passionate communities, these platforms could have a bright future ahead of them. NextGen isn’t put off by the initial numbers. “Compared to venture capital, it’s a tiny emerging market,” said Swart, “but having [around] 10,000 people within the first 6 months feels like we’re off to a good start to me.”

Startup Roundup: Goldman Sachs, American Express placing further fintech bets

fintech companies making news this week

[x_alert type=”success”]Every week, we write about fintech startups raising money, making partnerships, and generally disrupting finance[/x_alert]

This week, finance’s who’s who soiréed at the Economist’s Buttonwood Gathering. The one question that seemed to underly all the discussions and break out sessions:

  • what about banks?
  • What’s the banking sector’s role going forward when fintech is disrupting from above, below, and laterally?

The Startups: Who’s shaking things up

Inside Monese, the mobile banking app for migrants (Tradestreaming)
The app lets people sign up with just a picture of a passport and a selfie in as little as 3 minutes.

LendKey Enhances Lending-as-a-Service for Local Banks & Credit Unions (Finovate)
Tradestreaming Tearsheet: Even in this newsletter there’s lots of talk about the competition hitting banks. New platforms like LendKey don’t disintermediate them as lenders; instead, they help them create digital offerings and compete. It will be interesting to see how many banks adopt platforms like LendKey or instead partner with the larger online lenders.

Indiegogo Launches Generosity To Compete In Personal Crowdfunding (About.com)
Tradestreaming Tearsheet: After GoFundMe’s (crowdfunding platform for personal campaigns like paying medical bills or tuition) success and raising massive amounts of capital, Indiegogo wants more of the market and relaunches (and rebrands) its own offering, Generosity.

Digital currency is poised to reinvent how startups are funded, led by Chroma Fund (TechRepublic)
Chroma Fund is a crowdfunding site powered by the blockchain, the same underlying technology that powers Bitcoin. Learn how it’s preparing to disrupt startup investing.

From start-up to incumbent: the innovation cycle (The Finanser)
Tradestreaming Tearsheet: Interesting framework to think about growth in the fintech industry and how that maturation unfurls for startups on their way to becoming larger, incumbent players. Useful for startup founders and those investing/partnering with fintech startups.

RushCard Breakdown Affects Thousands of Prepaid Debit Card Users (NYT)
The troubles, lasting much of the past week, illustrate the potential perils for those without access to the banking system.

Co-Founder of Capital One, Nigel Morris, Joins Zopa Board (Crowdfund Insider)
Morris, currently the Managing Partner at QED Investors, is the co-founder of Capital One. QED has invested in well known Fintech companies, including, Credit Karma, Avant Credit, GreenSky and SoFi.

OnDeck Adds New Small Business Lending Options (Finovate)
“The expanded product suite includes broader loan terms, increasing the maximum loan amount from $250,000 to $500,000 and granting borrowers up to 36 months to repay (from 24 months). Lines of credit will be available up to $100,000 (from $20,000) for a monthly fee of $20 and no “draw fees.” And repeat customers will be eligible for annual rates as low as 5.99%, as well as loyalty pricing benefits.”

Early Read on Square’s S-1 Filing (First Annapolis)
Good initial read of the payment firm’s IPO filing – what questions it answers and which ones remain unanswered.

Startups raising money this week

Goldman Sachs leads investment in cloud-based POS startup Financeit (Finextra)
FinanceIt enables businesses to offer payment plans to their customers and Goldman Sachs wants a piece of the online lending fintech firm.

American Express Invests In Bitcoin Venture, Abra, Which Announces U.S., Philippines Launch (Forbes)
Bitcoin startup Abra will soon launch in the US and Philippines, and is rolling out a merchant services API. It also received investment from American Express and Ratan Tata.

Citrus Payments Raises $25M (Let’s Talk Payments)
PE firm Ascent Capital and early investor Sequoia are investing $25M in Citrus’s C round. Citrus “makes digital payments and online checkout processes simpler, faster, safer and easier for an 800 million strong electronically connected user base”.

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