Thank you for reading this issue, which is focused on the SEC's new rules for Title III (crowdfunding) of the JOBS ACT and the implications for startups in the USA. 

The Crowdfunding Market

The US crowdfunding market is changing. The  dominant part of the business has become the Lending sector (sometimes called P2P lending), involving both platforms like Prosper and nonprofits like Kiva. The Rewards sector is the one that most people recognize and the one that attracts most participants, through industry leaders such as Kickstarter and Indiegogo. The Donation sector includes sites for nonprofits like Gofundme and Causes. Both the Rewards and Donation sectors have been growing steadily. 

The Equity sector in the USA has only been open to accredited investors until now. They are about 9% of the population (3.4m), though only about 250,000 are active. Under the newly published SEC Title III rules, Equity crowdfunding will be open to a much wider range of 'ordinary' investors, as many as 233 million people-or two-thirds of the country.

The global crowdfunding market is huge, as the The GrowVC infographic below shows.

While rewards and equity campaigns typically get the most headlines, it is the lending sector that dominates the crowdfunding industry: in 2014, it raised $11.08 billion dollars according to Massolution's 2015 Crowdfunding Industry Report. Business and entrepreneurship remained as the most popular crowdfunding category, collecting $6.7 billion in 2014, which represents 41.3 percent of total crowdfunding volume. Social causes ($3.06 billion), films and performing arts ($1.97), real estate ($1.01 billion), and music and recording arts ($736 million) rounded out the top five categories.

The VC market is about $30 billion now, but a new wave of capital is set to be unleashed by Title III and come into U.S. investing, which some estimate will grow to a $300 billion market, says Fortune magazine, from the time that non-accredited investors (you and me) can participate next year.

New Rules Widen Crowdfunding to More Companies and People

When the new rules for Title III Crowdfunding go into effect, companies will be enabled to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period from both accredited and non-accredited investors.

Non-accredited investors will be able to invest up to $2,000 or five per cent of their annual income or net worth over the same period, if both their annual income and net worth are less than $100,000. If their income or net worth is equal to or more than $100,000, they will be able to invest 10 per cent of annual income or net worth, buying up to $100K of securities through crowdfunding.

Published last month, the new rules will be effective early next year. They will require all transactions relying on the new rules to take place through an SEC-registered intermediary (a broker-dealer or a funding portal). Companies raising funding this way will need to file certain information and an annual report with the SEC as well as providing it to investors.

It all looks very easy, and I'm sure that when the new 'general public' Equity crowdfunding platforms become available next year, their owners will have done lots of due diligence, but if you have legal questions in the meantime, I suggest you try an attorney, such as  Mark Roderick, a crowdfunding specialist.

As anybody who has raised funds through any kind of crowdfunding will tell you, you will have to be a genius at all kinds of other promotion of the offer, especially through the use of social media both to gain traction and raise the money you are looking for. A very useful book is Traction: how any startup can gain explosive customer growth, by Gabriel Weinberg and Justin Mares. It takes you (practically) through all the traction channels, most of which are on the Web.
12 Consequences for Entrepreneurs


The crowdfunding equity options for startups will greatly expand in 2016. This will result in significant changes on both the demand and supply side of startup finance.

  1. Established Reward sites like Kickstarter and Indiegogo may open up Equity options and the head of the latter has already said he was examining possibilities.
  2. New entrants to the US Equity crowdfunding market, especially from Europe and Asia are preparing to launch in 2016. An example is the successful UK-based Seedrs, which expanded across Europe last year, when they also bought the US company Junction for the same purpose in America.
  3. Business angels may also re-examine their options, as smaller investors decide to get in on the act through Equity crowdfunding. Angels will evolve or may miss opportunities to invest in startups. 
  4. Angellist and Gust, so called 'non-curated' crowdfunding platforms may become more significant in the democratized marketplace next year.
  5. Main Street banks are likely to have to re-appraise their approach to small business lending, and/or get into the equity crowdfunding business themselves. Entrepreneurs are likely to take a fresh look at the cost and impositions of bank loans.
  6. The set of funding options that will be open to startups, both at the pre-seed and later stages. No longer will it be only self-funding, family and friends for Equity investments, though the latter will have a better way to invest than through the traditional promissory note.
  7. The valuation of early-stage Equity investments will likely become more transparent and help entrepreneurs both attract funds and measure the value of their companies through the market.
  8. The game changing new rules will result in entrepreneurs taking an entirely new look at funding the capital requirements of their firms, but should not have them exaggerate their claims.
  9. The basic prudence of asking 'how little money do I need?' should not suddenly become 'how much money do I need?' simply because access may be a little easier.
  10. Entrepreneurs should not suddenly abandon the concept of bootstrapping their startups. Too much money tends to worse than too little. Watching and conserving cash flow is vital to get through the early days of a new business.
  11. Rewards crowdfunding may diminish in importance, since it's expansion has often been a way for product innovation startups could fund development, but now they will have a more secure route through Equity crowdfunding.
  12. Startups that are successful at attracting Equity investors through crowdfunding will at the same time be creating a crowd of evangelists and promoters, who will want the business to succeed in their own interests.

Thanks for reading. While the new rules for 'everyone' Equity crowdfunding will not be effective until 2016, I would appreciate hearing from you to hear about how you make make use of the opportunity.


Will Keyser
Venture Founders LLC

Visit the Startup Owl website to learn more
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