By Tanner Simkins | June 13, 2014 |
You’ve heard a lot about crowdfunding since JOBS Act Title II passed last year. Since then, early stage companies have turned to general solicitation in search of funding. The caveat is that investment must come from accredited investors through SEC-registered intermediaries. This has given rise to many equity crowdfunding platforms. These portals, mostly online, allow accredited investors to inject capital into private businesses through lending or investment in exchange for an ownership stake. Colloquially, this is known as equity crowdfunding.
Equity crowdfunding is fundamentally different than the popular donation or rewards-based crowdfunding. With a platform like Kickstarter for example, start-ups and small businesses provide supporters with product samples or exclusive orders in exchange for financial investment. These campaigns have raised capital for products like innovative smart watches, affordable 3D printers, and virtual reality headsets.
To elaborate the difference between the equity and donation crowdfunding models, let’s consider the virtual reality example, Oculus Rift, a gaming display that garnered over $2.4 million in 2012 through Kickstarter donations. Fast forward to March 2014 –Facebook acquired Oculus for $2 billion. Unfortunately due to the lack of equity stake, the original supporters that funded Oculus Rift’s capital raise did not see the 200-fold return after the acquisition event.
Smart money wants to tap into the lucrative upside that comes with ownership. As a result industry and even niche specific portals are attempting to secure space. For exampleRealtyShares allows for real estate crowdfunding for accredited investors, Indiegogo focuses on raising capital for creative products, and IPOvillage pushes equity funding for NASDAQ IPOs, just to name a few. It is a basic financial concept that options have value, competition increases efficiency, and having platforms focus on specific areas helps reduce category confusion. Perhaps most advantageous for businesses is the ability for these portals to target a specific type of investor. This increases the likelihood of ventures reaching their ask.
Enter sports business
In May 2014, Alchemy Global extended the equity crowdfunding trend into sports and entertainment. In addition to being the space’s first portal for accredited investors, Alchemy separates itself from portals in other categories by doubling as an advisory firm, chief executive Andy Brusman told me during a recent conversation.
With the rise of crowdfunding platforms, Alchemy knows that competitors will arrive in the sports entertainment niche like what has happened with other sectors. “Overall the market has different portals popping up each day,” said Brusman. “The easiest way to compete is by lowering your price during the capital raise and that’s just not where we want to be.”
Alchemy is instead positioned to be a premium portal with value adding services “to stand above future competition.”
Currently there are no other crowdfunding platforms for accredited sports entertainment investors. But there are many other sport investment vehicles and viable options for one looking to invest in this space. Traditionally, you could invest in sports in a few ways: own a team, collect memorabilia, or simply purchase stock in an allied business. In the past few years, we have seen an increase in sports-based structured investments and ventures exploring new frontiers of the space. For example, online broker Motif operates somewhere between mutual funds and ETFs, like with this sports business collection. Then there are new age asset-backed securities like debt issued on singer-songwriters and Fantex equity shares backed on athlete entertainers. Creative ventures as a whole are also on the rise. Examples include experiential entertainment like extreme obstacle races, data capture devices like sport wearables, and real-time fan interaction like innovative fantasy games.