Regulation Crowdfunding is a Different Ball Game

By  Crowdfunding Strategy, Personal Cloud Technology, CrowdFund Beat Guest post,

For the last six months or so I have been working with both portal owners and offering issuers to prepare for Regulation Crowdfunding (Title III). Having been in the trenches on multiple sides I have been able to observe some of the shortcomings and successes of the new crowdfunding law and those taking advantage of it. I want to focus on one area of observation (and frustration) we have come across.

Just because you were successful with Reg D or even Reg A+ doesn’t mean you know what you’re doing with Reg CF. Similarly, having been successful in the investing space for the last 20 years may not translate into crowdfunding success.
The first and most apparent reason for the above statement is that with a new regulation comes new requirements and nuances. This is something that everyone has to deal with, but will be resolved in time as regulators, portal owners, and issuers alike work out the kinks. In this case however, new regulation makes it harder by taking away some of the crowning features in previous crowdfunding laws such as open solicitation and the ability to test the waters. This means you can’t openly target and advertise the offering to potential investors out there or spend time testing the market with indications of interest from the crowd before going all in. Couple that with a new class of investor who thinks very differently and has a basic level of understanding when it comes to securities investments.

 

Given this landscape, even those who have run a successful portal targeting accredited investors are struggling to garner interest and action from new investors for offerings under Reg CF (Title III). One major reason for this is that the way you target and work with the general public to get them to invest is a lot different than your traditional investor. The strategy needs to change, and addressing the bullet points below may help:

Most people aren’t actively looking for an investment opportunity like an accredited investor might. This means it will take a very deliberate strategy and knowledge of marketing to the general consumer to drum up interest. Focus on the product, the company from an outside view, and target emotion or support for a greater cause.
“The Crowd” wants it simple. They don’t understand and therefore won’t care much about sophisticated asset classifications, rights, options, etc… They want to support a small business and have ownership in that company. Focusing on educating the market could be key in time to come.
There is a stronger component of wanting to be a part of something bigger as well as make a return on the investment. Reg CF is the next natural step for those participating in rewards based crowdfunding. These new investors will need to be sold on vision of the company/investment to fill the void of not receiving a product or something of value right away.
As new amendments are presented and passed to fix regulation crowdfunding things will get easier for all the parties involved, but regardless of those factors we as an industry need to hone in our marketing and services to better serve the millions of potential investors who are beginning to enter the investment crowdfunding arena.

 

Again, this was just one observation I’ve had thus far working with Title III offerings. Feel free to share your observations in the comments section!

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