Instead of waiting for regulators we should be working collaborativelywith them to build on the suggested structure in the picture above. I’m sure there are lots of holes and misunderstandings but we have to start somewhere. A distributed solution is needed for distributed low value transactions.Centralised control will not work for sub $2 million equity crowdfunding raises.
At the very least we should be pointing out that a great deal of tax payer money will be lost putting in regulatory structures for sub $2 million raises that will not get traction because of cost and compliance issues. We should be working on an alternative solution now as this is where job creation and the majority of small businesses live.
What we need is ….
An open, shared, fully transparent,
zero cost, trust based transactional
recording and reporting
The high cost of a sub $2 million and under raise comes from both regulatory requirements and what the intermediary needs to handle the raise. A fairly standard intermediary minimum is $5,000 a month retainer or $20k up front. In addition for the company raising funds there will be a wealth of other costs. Some put the total at $100,000. Hardly workable if you are only raising $300,000. A cloud based shared approach enables stakeholders to track their ownership without the direct involvement in the record keeping and transfer process needed for a central authority. It also doesnt require an intermediary other than the platform.
The various stakeholders would operate via the blockchain or cloud based system in differing ways but each would do so at the lowest possible cost relative to the information or service they require.
- The Public would be able to see what actual investment has transpired to date and if it matches what is spruiked on the site. They would also be able to check Directors registers and the Directors history registers to see the path the entrepreneur has taken to reach this raise. Those members of the public who are interested can post questions and comments on each company’s uneditable discussion board that can be answered by anyone in the “room”, thus facilitating the wisdom of the crowd.
- The Regulator has a unique oversight that is “data intensive and prescriptively light” using leading edge big-data techniques and this means that by using technology for frequent monitoring of the system, there is an opportunity to react much more quickly if there are concerns regarding an issuer, investor, or transaction. It also means they can concentrate on the bigger end of town as the “crowd” will do their job in highlighting bad actors effectively doing the regulators job long before it becomes a problem
- The Small Business. This is the stakeholder that is mostly forgotten in all regulatory frameworks to date. Proponents of regulatory structures, especially politicians, wax on eloquently about all the jobs that will be created but they pitch the regulatory structure towards their financial services incumbents and accredited investors where there is less opportunity for volume job growth. The small business needs selling equity to be as easy as doing a Kickstarter raise including disclosure achieved by easily completed standard templates for publishing online.
- The Platform needs to be able to make money but also operate without the fear that even though they are not giving advice they are not seen as anything more than the publisher. Like eBay, Amazon and a myriad of online matchmakers. As in Malaysia they are registered but not licensed. They are a Publisher” but must meet minimum operating requirements mandated. They cannot give advice or rank favourites.
- The Investor can always see their own holding and others. Before they invest they can read the transparent material on the company in the Blockchain and independently assess their decision. If the crowd has doubts they will also be able to read their comments. They will need to accept risk warnings and standardised video investor education will be available. To invest they will have to complete viewing and be digitally signed as doing so.They will also be digitally recorded as certifying they have accepted the investor warnings on several occasions.
By the time Title III is out the Blockchain will be ready to handle this.Bring it on!
Paul Niederer is one of world’s leading authorities in equity based crowdfunding investments and raisings and constructing collaborative funding solutions. He has personally been involved in over $75 million of transactions with 90 different companies seeking capital.
With the intense interest worldwide in EquityCrowdfunding Platforms, and Collaborative Funding Platforms Paul is involved in consulting to a number of parties on how to structure their funding portals, processes and regulations to have successful raises with a fair deal for investors and stakeholders.
He regularly presents seminars on on a number of topics including Collaborative Funding, Crowdfunding in 2020, Investor Crowdfunding: How to run and manage your own platform compliantly and successfully, The Democratization of Capital – Why it is happening now and how to handle it and Executive and Management Briefings on Crowdfunding.
Paul has spoked at a number of events worldwide including the annual Crowdfunding Bootcamp in Las Vegas, the Crowdfunding Asia Summit in Singapore, INSME Academy’s “How Small Businesses Can Embrace Crowdfunding for Success!”, the WASME 19th International Conference on SMEs in Durban, the Crowdfund Investing Innovation Forum in Orlando with the topic “Fraud and the Crowd” and an International Business Angels Event in Amsterdam.