Around the world there is little evidence that regulators can provide a regulatory environment to get traction in the investor aggregation space for retail equity crowdfunding raises under say $600,000.
Even in the United Kingdom, where the regulator has allowed the industry to develop and has fine-tuned the regulations as they go virtually every raise takes advantage of the Enterprise Investment Scheme (EIS) . This means that it is primarily the government curaton process that is selecting listings rather than the entities wanting to have a go at welcoming their friends, fans, family and followers into the business.
Virtually every report on retail / non-accredited investor / Title III funding has said the cost of the raise will be too high to give traction. Alternatives are needed.
Here is one:
An Alternative Title III / Retail / Non-accredited Investors and Equity Crowdfunding Solution
An open, shared, fully transparent,
zero cost, trust based transactional
recording and reporting
The high cost of a $600k and under raise comes from both regulatory requirements and what the intermediary needs to handle the raise. A fairly standard intermediary minimum is $5,000 a month retainer or $20k up front. In addition for the company raising funds there will be a wealth of other costs. Some put the total at $100,000. Hardly workable if you are only raising $300,000. This approach enables stakeholders to track their ownership without the direct involvement in the record keeping and transfer process needed for a central authority. It also doesnt require an intermediary other than the platform.
The following diagram details the alternative:
The various stakeholders would operate via the blockchain or cloud based system in differing ways but each would do so at the lowest possible cost relative to the information or service they require.
- The Public would be able to see what actual investment has transpired to date and if it matches what is spruiked on the site. They would also be able to check Directors registers and the Directors history registers to see the path the entrepreneur has taken to reach this raise. Those members of the public who are interested can post questions and comments on each company’s uneditable discussion board that can be answered by anyone in the “room”, thus facilitating the wisdom of the crowd.
- The Regulator has a unique oversight that is “data intensive and prescriptively light” using leading edge big-data techniques and this means that by using technology for frequent monitoring of the system, there is an opportunity to react much more quickly if there are concerns regarding an issuer, investor, or transaction. It also means they can concentrate on the bigger end of town as the “crowd” will do their job in highlighting bad actors effectively doing the regulators job long before it becomes a problem
- The Small Business. This is the stakeholder that is mostly forgotten in all regulatory frameworks to date. Proponents of regulatory structures, especially politicians, wax on eloquently about all the jobs that will be created but they pitch the regulatory structure high and right towards their financial services incumbents and accredited investors where thee is less opportunity for volume job growth. The small business needs selling equity to be as easy as doing a Kickstarter raise including disclosure achieved by easily completed standard templates for publishing online.
- The Platform needs to be able to make money but also operate without the fear that even though they are not giving advice they are not seen as anything more than the publisher. Like eBay, Amazon and a myriad of online matchmakers. As in Malaysia they are registered but not licensed. They are a Publisher” but must meet minimum operating requirements mandated. They cannot give advice or rank favourites.
- The Investor can always see their own holding and others. Before they invest they can read the transparent material on the company in the Blockchain and independently assess their decision. If the crowd has doubts they will also be able to read their comments. They will need to accept risk warnings and standardised video investor education will be available. To invest they will have to complete viewing and be digitally signed as doing so. They will also be digitally recorded as certifying they have accepted the investor warnings on several occasions.
By the time Title III is out the Blockchain will be ready for this. Bring it on! Lets empower the lower left below.