Fortunately for me, there are a lot of complicated legal issues around Crowdfunding, including:
- The differences among Title II, Title III, and Title IV
- The differences between Rule 506(b) offerings and Rule 506(c) offerings
- The differences between accredited investors and non-accredited investors
- The Trust Indenture Act of 1939
- The Investment Company Act of 1940
- Applying broker-dealer and investment adviser laws to Crowdfunding portals
But at a higher level Crowdfunding isn’t complicated at all. Crowdfunding is just the Internet coming to the capital formation industry.
What happens when the Internet comes to an industry? Look at the publishing industry and the travel industry and the music industry and, increasingly, the entire retail industry:
- Buyer and sellers connect directly
- Middlemen are displaced
- Prices decrease as the industry becomes more efficient
- The middlemen being displaced are sure it won’t happen as it’s happening
- In the end, the industry looks completely different and we all take it for granted
In Crowdfunding, the “sellers” are entrepreneurs and real estate developers seeking capital and the “buyers” are investors. The middlemen are the lawyers, bankers, finders, brokers, venture capital funds, investment advisors, and all the others who for the last 80 years have played an indispensable part in connecting entrepreneurs with investors. Today, for the first time, entrepreneurs and investors can connect directly, via the Internet. The middlemen have already started to be pushed to the side. The picture in my mind is an ice field slowly breaking apart as temperatures warm.
People sometimes ask whether Crowdfunding will last. I respond “When was the last time you planned a vacation through a bricks-and-mortar agency?” The Internet is here to stay!
The capital formation industry is enormous – far, far bigger than the book selling industry or the travel industry. And the middlemen in the capital formation industry enjoy far greater political power than Barnes & Noble. But in the end, resistance is futile.
As you’re planning and managing your own portal, or any other Crowdfunding business, pause every now and then and remember that for all the legal complexity, for all the nuts-and-bolts, day-to-day grind of generating cash flow, Crowdfunding is nothing more or less than the Internet come to the capital formation industry.
Questions? Contact Mark Roderick.