What the U.S. Can Learn From the Netherlands About Equity Crowdfunding

Image credit: Symbid.com

Image credit: Symbid.com

U.S. regulators are tied up in knots trying to figure out how to write the laws for equity crowdfunding to prevent fraud.

Perhaps they ought to take a page from the Dutch.

In the Netherlands, equity crowdfunding from unaccredited investors has been legal for the better part of three years. “The Netherlands are really a frontrunner in equity-based crowdfunding,” Korstiaan Zandvliet, the co-founder of Symbid, said at the Massolution crowdsourcing conference in New York City last week.

Korstiaan Zandvliet is the co-founder of equity crowdfunding platform Symbid.com, which has funded 23 startups with more than 2 million euros.

Symbid is an equity-crowdfunding platform headquartered in the Netherlands that has been in existence since 2011. The platform has funded 23 startups, raising more than 2 million euros ($2.7 million) from over 15,000 unaccredited investors, according to Zandvliet. “We tend to have a bit of experience,” he says.

Equity crowdfunding is when a company raises capital by selling small pieces of equity to a large number of investors. This differs from donation-based crowdfunding – made popular by sites like Kickstarter and Indiegogo — whereby a company collects small donations from a large number of people and, in exchange, gives each donor some sort of non-monetary reward.

Currently, it’s legal for businesses to sell equity to the crowd, but they can only sell to accredited investors. An accredited investor is an individual who makes more than $200,000 a year or has more than $1 million in total assets, excluding primary residence.

But that’s all changing. The Jumpstart Our Business Startups Act, or JOBS Act, which was signed into law in April of last year, includes a provision to make it legal for entrepreneurs to sell pieces of their company to unaccredited investors, or “regular investors.” That means almost anyone can become a shareholder in a private company – a process that could leave many investors vulnerable to fraud.

The U.S. Securities and Exchange Commission has already blown past initial rule-setting deadlines and regulators have been in heated negotiations about how best to protect regular investors.

Meanwhile, Zandvliet at Symbid has had zero cases of fraud in three years. “What we have seen so far is that the crowd is a great due diligence tool. They actually find out basically everything,” he says. Of the 15,000 individuals who have made contributions to startups on Symbid, 10 percent are angel investors. Zandvliet says many of these professional investors consider the crowd as effective a tool as any to identify entrepreneurs and startups with the most potential.

Symbid does take precautions to protect investors. For example, it uses an online electronic money institution to convert investors’ money into a digital currency that can be spent on the portal. Furthermore, Symbid gives its investors the option to “disinvest” their money. “It is an ongoing process where the entrepreneur needs to wake up every day and put up his best game in order to secure new investments but also to make sure the older investments remain into that particular proposition,” says Zandvliet.

Investors on the site have proven they will act when they don’t trust the startup they’re investing in. One entrepreneur who had launched a campaign for a tech startup on the crowdfunding platform was on his way to raising 100,000 euros when it was revealed he was cheating on his wife. Sixteen hours later, his fundraising campaign was kaput, says Zandvliet.

“All the funds were disinvested simply because the curtain was pulled,” he says. “And this is what crowdfunding is all about. It is about the digital due diligence process conducted by professionals, friends, family, fools. And everybody has an equal say, and this is what truly creates great companies.”

All 23 startups funded on Symbid are still in business. And the popularity of equity crowdfunding is growing. One of the largest Dutch banks, ABN AMRO, has started its own crowdfunding platform. Zandvliet welcomed the move from the bank because it lends credibility to the new industry.

Despite the success of equity crowdfunding in the Netherlands, it’s going to be a while before the U.S. is going to be set up for unaccredited investors, says Doug Ellenoff, a managing partner and corporate and securities attorney at law firm Ellenoff, Grossman & Schole, also at the Massolution crowdsourcing conference. Ellenoff has been working with regulators for about a year and a half to build the rules for both Titles 2 and 3 of the JOBS Act. “If we are lucky, we will see the proposed rules sometime in the fall,” he says.

The delays are not because the SEC and its staff have been unreceptive or are not working diligently, says Ellenoff. To the contrary, Ellenoff has been quite impressed with the efforts of the SEC and says the Commission is being hamstrung by political issues, not the least of which is the changes in the agency’s leadership.

Still, there are ongoing concerns about how best to protect unaccredited investors. “I think there is a lot of controversy and earnest concern about Title 3 and opening up investments that may result in loss to unaccredited investors and may result in further egg on the face of regulators at the federal and state levels,” he says.

Source: Entrepreneur Catherine Clifford
Link: http://www.entrepreneur.com/article/228627
Catherine Clifford is a staff writer at Entrepreneur.com.

Read more: http://www.entrepreneur.com/article/228627#ixzz2g8M40Tsl

Tags: , , ,

HEADLINE NEWS

ForbesHow One Startup Raised 10 Times Its Original Crowdfunding GoalForbesRunning a successful crowdfunding campaign isn't easy. The odds are heavily stacked against you, as very few end up succeeding. "Statistically, up to 89% of campaigns fail. Kickstarter has the highest [...]

ForbesThe Ultimate Pre-Launch Crowdfunding ChecklistForbesCrowdfunding is not limited to the platform where you launch your campaign. Instead, it has become a valuable way to transform your idea into a mainstream business. In order to head in that direction, you must execute a number [...]

Eater LondonFat Macy's Launch Crowdfunding Campaign to Open Restaurant in PeckhamEater LondonFat Macy's — a food social enterprise which aims to train young Londoners living in temporary housing — have launched a crowdfunding campaign. Their aim is to raise £55,141 to fund a [...]

Realnoe vremyaEveryone pools: Elvira Nabiullina to look closer at crowdfundingRealnoe vremyaThe Central Bank has seriously started fighting against crowdfunding platforms. The regulator told the gradual imposition of control of the sector won't begin earlier than in 2018. But mar [...]

Devon LiveCrowdfunding campaign launched to save adopted Romanian puppy who needs £8000 for vital surgery to save its lifeDevon LiveSam has started a crowd-funding campaign to try to help meet the £8000 cost of the surgery. It's a tall order, but every little helps. Sam had been [...]

U.S. News & World ReportNo Cash for Hate, Say Mainstream Crowdfunding FirmsU.S. News & World ReportThe block on mainstream crowdfunding is just the latest blow to far-right activists operating online. In the last 24 hours, neo-Nazi website the Daily Stormer had its domain regi [...]

The AustralianIgniteme heats up crowdfundingThe Australian“The only other comparable film that raised money through crowdfunding would be Crocodile Dundee, but not all funding came from the crowd.” Mr Morello said the idea behind the platform was relatively simple — giving new and bud [...]

UKTN8 simple steps for a successful equity crowdfunding campaignUKTNTom Horbye, senior campaign development associate at Seedrs, shares his top tips for a successful equity crowdfunding campaign. Here are eight easy-to-follow tips to help you devise and launch a successful equity crow [...]

LivemintFinding the right balance on crowdfundingLivemintSecurities market regulator Sebi (Securities and Exchange Board of India) has been trying to get a handle on digital platform-based crowdfunding since at least 2014, when it issued a cautiously positive consultation paper. It fl [...]

Crain's Cleveland Business'Smaller' gifts can go long way for Clinic's crowdfunding platformCrain's Cleveland BusinessFor an institution accustomed to securing multimillion-dollar donations, Cleveland Clinic's latest fundraising effort has some relatively [...]

CFB Finance

Syml
Lst Val
+/- Val
+/- %

Marketwired

  • Crowdfunding
  • Crowdfund
  • Peer to Peer Lending
  • FinTech
  • Reg A+
  • Reg CF
  • Crowdfunding USA

Press Release

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |