Equity Crowdfunding, Startup Ecosystems And Role Of Governments

By , Grow VC  &  CrowdFundBeat contributing guest editor,

Enabling Equity Crowdfunding & Accelerating Startup Ecosystems Globally,

For startup ecosystems creating innovations, jobs and economic growth around the world, these new digital investing models, like equity crowdfunding and related processes accelerate the overall investing knowledge especially with reference to investment processes and investor expectations. In general, they can help a city or country to “skip a generation” of trying to only build or grow traditional “offline” based risk finance models like grants, traditional business angel and venture capital models. In mature markets, business angels and VC’s too are already moving onto digital platforms and investing alongside the crowd (either leading or following).The following modified excerpt has been extracted from DealIndex “Democratising Finance – Alternative Finance, Demystified” report. You can download full free copy of the report via DealIndex website.

One of the fundamental differences between digital investing and open marketplace models like equity crowdfunding – is that, instead of a company having to limit itself to specific funding instruments, known investors, rules or limitations, it can freely structure its offering and then let the market decide if it’s interesting (within the limits of regulation).

Generally, whenever there are more options than before, it is a positive thing for everyone and for any company that has high growth ambitions, the digital fundraising process forces founders to learn how to communicate with potential investors early on. This alone is valuable for the future.

Overall, the equity crowdfunding model simplifies things, expands reach and makes the overall process more transparent. With this, investors and other founders can learn and get more knowledge about other companies that have used the process before them.

From a general perspective the digital finance market is all about better access, transparency and efficiency. Everything is on 24/7 and things happen in real-time. This, together with the historical and live data that this digital market generates, leads to ever faster and deeper learning and further development of all areas it spreads to.

By applying digital marketplaces in different countries and cities, one can productively showcase the best regional investment opportunities in the international market via channels like DealIndex.co to showcase opportunities to broader international investor audiences beyond the local region itself.

Governments play a very important role in getting equity crowdfunding enabled in their startup ecosystem and beyond, as anyone who’s looking to setup and operate a new local platform spends significant effort on doing their own risk assessment and regulatory due diligence. While it’s understandable that laws and regulations typically follow innovation, the most important factors for risk assessment are the easy availability of information and the clarity of the regulatory environment.

When the rules are less clear, the way the government reacts to innovation is important. For example, in the UK and US, the governments have led and openly communicated their views on innovations in alternative finance and how they plan on acting should the market move adversely. This open dialogue is important to build mutual trust between all parties and this approach sends a positive signal to those in this new market.

In smaller and/or less developed countries, the role of government is even more

important and may require for local government to take even more active role to help kickstart equity crowdfunding for their country – to help add credibility or even help fund the initial setup of the first few platforms, if the opportunity to setup a platform is evaluated to be too risky by the private parties alone and other regions seem to offer more attractive opportunities.

As without the governments positive support, there is a risk for some regions to continue fall further behind in this fast growing digitalization in investing to private companies and beyond.

For governments looking for ways to enable digital investing for international investors or equity crowdfunding within their startup ecosystems, I recommend to contact Crow Advisors for support.

Valto Loikkanen

valto@growvc.com

Enabling Equity Crowdfunding & Accelerating Startup Ecosystems Globally

DealIndex (www.dealindex.co) is an intelligent data and deal aggregator of private companies and assets raising capital across leading alternative finance platforms globally. DealIndex adopts a global, curated approach to the alternative finance ecosystem, providing extensive data, research and analytics as part of its service to clients.

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