NEW YORK & LONDON--(BUSINESS WIRE)--Based on the SEC’s proposed crowdfunding Title II and Title III rules, equity crowdfunding will soon enter the United States, providing a new option for small businesses to raise financing, bringing with it the promise of democratizing access to capital by giving power to the crowd.
But in new research, “US Crowdfunding: The Making of a Market,” co-written by CEO Larry Tabb and contributing analyst Deepali Nigam, TABB Group says the jury is still out on the final rules’ impact:
- Will they have the power to create a healthy new marketplace where US small businesses will be able to successfully gain access to funding?
- Will crowdfunding expose innocent, small-time investors to fraudsters and scam artists?
- Will the rules prove too rigid, stifling this industry before it even starts?
- Will crowdfunding be too expensive for US businesses?
- Who will gain advantages, broker/dealers or funding portals, with barriers-to-entry costs for one, potential liability exposure for the other, among other issues?
- Assuming a conservative 5% growth rate per year, TABB believes angel investing will grow to at least $28.5 billion by 2016, but will angel investing rules be more impactful to investors or issuers?
- As new platforms targeting accredited investors emerge, how easy will it be for high net worth individuals to meet their investment strategy requirements from as little as $1,000 to $37,000 per investment?
Title II of the US JOBS Act went into effect in September 2013, removing the ban on general solicitation, allowing start-ups to raise funds through new social media networks. A number of platforms targeting accredited investors have already entered the US market; TABB highlights 18 global platforms, including 12 in the US. Title III, which deals with crowdfunding, is expected to go be implemented by third quarter of 2014, if SEC rule making goes according to schedule. It will allow unaccredited investors to participate in equity offerings and provides an exemption for issuers to raise up to $1 million a year via online intermediaries, such as registered broker/dealers or internet-based funding portals, registered with FINRA.
This is where TABB believes there is a role for institutions to set up their own platforms with significant advantages over funding portals. As Nigam explains, the cost of capital to an issuer when raising funds from an unaccredited investor is relatively expensive compared to traditional lending models. “This is perhaps the most important area for the SEC to get right if equity crowdfunding is to have a chance of succeeding.”
The 20-page report with 11 exhibits examines the impact of crowdfunding on US capital markets institutions, changes resulting from the JOBS Act; location, type and strategy of global crowdfunding platforms; growth forecast for angel investments, 2011-2016; issuer requirements; cost of crowdfunding with a 5-year exit plan; intermediary rules and costs; key considerations for Reg D private placements and crowdfunding and global crowdfunding regulations.
The report can be downloaded by TABB Group Research Alliance Equity clients and media at http://www.tabbgroup.com/Login.aspx. For more information or to purchase the report, write to info@tabbgroup.com.
About TABB Group
Based in New York and London, TABB Group is the research and consulting firm focused exclusively on capital markets, based on the interview-based, “first-person knowledge” research methodology developed by Larry Tabb.
