By Irene Tordera CrowdFunding Beat guest editor,
Although Title III is not out yet, equity crowdfunding in the US is already changing the investing process, making it more efficient and less time consuming. Those ones mostly benefitting from it at the moment – besides fundraisers – are accredited investors, for whom it is now much easier to find compelling investment opportunities.
In fact, with only a few clicks, accredited investors can access a portfolio of investment offers on crowdfunding platforms, cutting in this way most of the work of the middlemen . This results in a far more rapid process, potentially helping them to identify a selection of off-the-beaten-path possibilities, including equity stakes in companies and real-estate projects.
Although the equity crowdfunding market in the US hasn’t reached yet its full potential , the market is already gearing up with the contribution of the abovementioned accredited investors, who play a fundamental role in this new market and will also do in the future, investing significant amounts of capital and potentially acting as a guide for non-professional investors approaching equity investments for the first time.
Therefore it is crucial for platforms entering the arena not to stay still waiting for the market to be open to the general crowd, but to start getting set up as well as to work to get an initial community of accreditated investors, to whom to offer a few interesting initial deals. How best to do that? Going the traditional way, the one-to-one approach may work well with professional investors – e.g. calls, events, meetings, etc.- but other methods may work too. Out of its experience, Crowd Valley published on this blog an article with a few more tips on how to get ready for the launch of a platform and to start building a community of investors.
However, on-boarding accreditated investors under rule 506(c) – the general solicitation one – may be burdensome for both the issuers and the investors, as the latter need to provide documentation of their wealth or income and the former need to verify it. This may become even more complex if the SEC, which is in charge of reviewing the definition of accreditated investors, is going to change it inserting, for example, the investor sophistication criteria. To simplify this process the Angel Capital Association, for instance, has started a Certification Program which will allow angel investors to verify their accredited status by being a member of the Program.
It is estimated that approximately 7% of the US population can qualifies as accredited investor today. Therefore the pool of accredited investors out in the market is big enough for any equity crowdfunding platform to go out with appealing projects and get a few into their community.
Carleton, W. (2014). ACA Webinar on Accredited Investor Definition and Established Angel Group Certification. Counselor @ Law.
Thorpe, D. (2014). SEC Mulls Changes to Accredited Investor Standards, 18 Crowdfunders React. Forbes.
Angel Capital Association (2014). Established Angel Group Certification Program.
About the author – Irene Tordera
Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives.
During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem.
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Image credit to: Simon Cunningham http://bit.ly/1uDyHvw