Intermediaries, Trust and Equity Crowdfunding

 Contributing Editor

Intermediary-controlled trust has been the main game in selling shares and equity since the 1930’s. That is why regulators have latched onto intermediaries, and their existing regimes to regulate the emergence of crowdfunding.

However intermediary-less trust is on its way. A truism that is getting stronger and stronger is that “the crowd will catch a bad actor long before the regulator will”.

The persistent focus on intermediaries by regulators means that they have not empowered the assistance the crowd can give in keeping equity crowdfunding participants honest. If blockchains become the new way to evidence trusted equity crowdfunding transactions we will soon end up with the trust part of transactions separated from intermediaries. That will mean that the regulators and government policy makers will have to ponder how do they continue to regulate something that is gradually disappearing?

In this new era, shares or equity will be exchanged without the need of intermediaries. The internet has already replaced many intermediaries through companies like AirBNB and Uber. The scary thing for existing intermediaries is that the replacement companies are doing the job a lot better and consumers are voting with their dollars. The next group of intermediaries to be replaced will be by the blockchain.

In regard to equity crowdfunding the blockchain enables transactions to be fully handled on a peer to peer basis. No intermediaries, share registries or escrow accounts. A wealth of red tape is removed and of course costs reduce dramatically. What is even more surprising is that with trust embedded in the transaction the participants don’t even need to know each other at a transaction level but they will have established a relationship before they made the investment decision. When it comes to AML/KYC (Anti-Money Laundering / Know Your Customer) processes these will also be handled by the blockchain as the source of all funds is recorded in the blockchain history and wallet addresses. Smart contracts will enable the automatic recording of the appropriate information  required by regulators so they can access it on the blockchain if need be.

This will take time though. We already know that land titles and property transactions could be done far more effectively and efficiently on the blockchain but the problem is most regulatory bodies or custodians of trust at the moment are government owned or controlled. That means that they have to embrace the new way of doing things before blockchain implementation can truly be comprehensive. Some services like escrow, share registers, stock exchanges, clearing houses, notaries that are intermediaries handling the trust part of the transaction can start first but for the full chain to work the government departments and regulators need to jump on board as well.

Once you get your mind around this you wonder why we need trusted intermediaries at all. You may remember that the trust factor in banking was publicly displayed in large impressive buildings with columns and marble with large vaults to witness their role as the trusted intermediary. Check this out today. The banks public manifestation is shrinking into areas where you must do all the transactions yourself in an ATM crowded space with a banking person there to assist you to use the machine. What happens when physical money disappears? The blockchain will remove banks from any physical presence.

Trusted intermediaries will be no longer required because trust travels with the transaction from one peer to another through a network purpose built to transport embedded trust.

Trust is being decentralised so there is no need for a centralised intermediary. To achieve this trust is shifting from humans and collections of centralised humans to transactions carried by computer networks that are embedded with trust. The decentralised consensus protocol driving blockchain will also drive the delivery of trusted transactions.

When people lived in villages and went to their local bank it was the local manager that was the trusted authority. I can remember my father insisting I open a bank account at the same bank as he did, and his father did, because of the family reputation. This type of thinking is no longer relevant as even the local manager cant override “head office”. It is the perpetuation of this type of journey that will shift the trust factor entirely away from human decision makers or endorsers or intermediaries.

Equity Crowdfunding has not reached its potential largely due to the imposition of outdated regulatory structures to handle the trust factor. The sooner the policy makers and regulators realise that they need to embrace this new way of handling trust the sooner we will see real traction in friends of friends investing in innovative new businesses via equity crowdfunding. At the moment paying an intermediary $20k to $80k to raise say $300k doesn’t really stack up.

FullSizeRender-1 (1)

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.

Tags: , , , , , , , , , , , , ,

HEADLINE NEWS

Crowdfunding deadline for community kitchen nears  The Daily TelegramADRIAN — The organizers of a community makerspace kitchen project have raised $35000 toward the $50000 goal of receiving matching funds from the ... [...]

Crowdfunding guide helps districts develop safe, effective practices  Education DiveChiefs for Change has released a new guide to help schools and districts use crowdfunding effectively, safely, and equitably, and to develop policies concerning ... [...]

Crowdfunding underway to re-purpose part of Bailey Park into dog-friendly area  WWMT-TVA crowdfunding initiative to raise a goal of $30000 is underway in Battle Creek in an effort to re-purpose a portion of Bailey Park into a new dog park, according ... [...]

Great Idea But No Capital? How To Launch A Business Through Crowdfunding  ForbesNoëlle Santos launched a viral crowdfunding campaign to open The Lit. Bar, a wine bar/bookstore in the Bronx. She shares her advice for crowdfunding a ... [...]

School Districts Are Banning Teachers From Using DonorsChoose  Education WeekAs teacher-led crowdfunding grows ever more popular, school leaders are starting to voice concerns. [...]

Insurance Giant AXA XL Launches Security Token and Crowdfunding Insurance Service  CointelegraphNews. Insurance giant AXA XL and insurance technology startup Assurely have jointly launched a new insurance product covering equity crowdfunding and ... [...]

MP to tap crowdfunding to finance campaign  The HinduN.K. Premachandran, the UDF candidate and sitting MP of Kollam, is all set to launch a crowdfunding drive to finance his election campaign.The facility to ... [...]

Currently Crowdfunding: A Smart Teapot, a Home Cheesemaker, and More  Core77.comNavigating the world of crowdfunding can be overwhelming, to put it lightly. Which projects are worth backing? Where's the filter to weed out the hundreds of ... [...]

Local businesses try crowdfunding to help expand, recover  The Register-GuardWhen Kevin Barrett fell from a ladder while constructing his distillery in Springfield, breaking six ribs, shattering his clavicle and puncturing his lung, it was his ... [...]

Healing Teddies seeks public embrace in crowdfunding campaign  The Jerusalem PostOnly weeks before her death, Ilana gave her mother a teddy bear, unaware of what this small gift would lead to. [...]

CFB Finance

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 |