rich man's crowd funding

7/29/2019 'Rich Man's Crowd Funding'

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'Rich Man's Crowd Funding'

The following post is by David Drake,

founder and chairman of LDJ Capital,

aNew YorkCity private-equity firm,

and of The Soho Loft Capital

Creation Events, a global events and

media company

Private Equity, funds, angel networks

and broker dealers are embracing the

technology underpinning

crowdfunding with its standards of

deal presentation and distribution channels to potential investors. According

toJouko Ahvenainen, Chairman and co-founder ofGrow VC, At Grow VC

Group we work with many broker dealers to offer our platform as a service

for their use. Through GrowVC they can easily transfer many offline activities

and investors to an online marketplace as a strategy to get more investors

and make their operations more effective. Although crowdfunding for equity

is not yet legal, the technology facilitating campaigns is widespread and

already affecting millions. The layout protocols and distribution technology of

these sites are what investment industry leaders want to use with the

clients, investors and deals they already have. New market infrastructure

will continue to be developed that will allow for efficient and effective

distribution of offerings, while embedding investor education and awareness

into the process, resulting in investor protection, saysVince MolinariofGATE

Technologies. This is the difference between capital raising and capital

formation.

Currently you raise private capital mainly through SEC exemptions. Most

common isRegulationD, 506 which allows you to have only 35 non-

accredited investors and an unlimited amount of rich people allowed to

David Drake and Vince Molinari

(r) speak with Congressman

Patrick McHenry (l) Jan. 2012
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invest. To be accredited you have to have earned $200,000 ($300k for

married couples) in the last 2 years or have a net worth over $1 million (and

you must exclude the value of your home). Reg D, 506 as we call it,

stood for $900 Billion in capital raised in 2011.

The deal presentation (since sites allow entrepreneurs to attractively supply

background, documentation, images, videos, presentations and FAQs) and

large online distribution capacity promised by crowdfunding technology is

what will empower broker dealers, funds and asset managers to differentiate

and use crowdfunding as a tool for their clients.Steven Cinelli, founder and

CEO of PRIMARQ, describes the salience of crowdfunding technology

to broker dealers in the following terms In essence, financing is a

business of information flows, between investor and issuer, and applied

technology allows one to accomplish such on an accelerated and global

basis. Think analog moving to digital. He has described an early experience

which demonstrated how significant the shift to an online platform can

be.Back in 1999, we developed OffRoad Capital, which was an online

market for Reg D private placements. For those that knew the private

placement process, we changed the game by enabling through our platformthe raising of up to $15 million in a matter of a week or so.

The use of this technology by broker dealers was presented to the National

Investment Banker Association in Spring 2012 and today we have seen

recent movements with SoMoLend and CrowdFunder signing up with the

leading broker dealer Gate Technologies, whose back end crowdfunding

platform is run by visionary CEO Vince Molinari. We will see the two to three

dozen dedicated crowdfunding for equity sites partner up with broker dealers

in Q1 2013 and start pursuing SEC broker dealer transactions under the

Rich MansCrowd Funding option in wait for crowdfunding for equity to

become legal.
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Leading players in the market like Crowdfunder, SeedInvest,CircleUp,

Launcht,Early Shares,WeFunder,Fundable,Indiegogo,RockethubandCrowd

Valleywill be the new broker dealers joining the industry in 2013 although

Kickstarter will not enter this segment. These firms are the new blood in the

market and are leveraging this technology. I believe the jury is out on who

the winners will be in the long run relative to the crowd platforms,says

Steven Cinelli. Much like an investment bank, issuers will opt for those

platforms that build a history of getting deals done. Its all about successful

distribution. CircleUp has already done half a dozen projects as a broker

dealer with their license held by WR Hambrecht & Co. The fact crowdfunding

for equity is delayed pushes these sites to start brokering Rich Mans Crowd

Funding.

We predict crowdfunding for equity will not become a legal SEC / FINRA

regulated program in 2013 rather, it will be introduced by January 2014

due to the processes in place needed for SEC and FINRA to interpret the

JOBS Act and implement the law (seeObamas 10 Steps with SEC & FINRA

to Legalize US Equity Crowd Funding). Vince Molinari has highlighted the

depth of the changes to come with crowdfunding for equity The implementation of Title II 506C will be the beginning of the paradigm

shift in the distribution of securities in the US. The advertising of private

securities will harness the power of Web 3.0 andSocial Media.

Meanwhile, funds, angel networks and asset managers are already reaching

out to us and asking us how the technology can allow them more efficiency

in offerings and opportunities as well as for their investor network. In the

words of Vince Molinari, Small to mid-sized broker dealers will see a boost

in their distribution via 506C which will result in more access to capital for

small and middle market companies resulting in US job creation and

economic recovery and expansion.
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