It goes without saying that the proposed SEC rules for equity-based crowdfunding are a game-changer. The opportunities for companies to secure investment funding have grown.
In the coming months and years we will be hearing about all sorts of companies whose very existence is owed to equity-based crowdfunding, along with companies who have capitalized on this opportunity by offering an additional product or service that caters to the industry.
One such company is BancBox. The San Mateo-based firm creates applications that make it easier for their clients to process financial transactions. They have developed an application specifically for crowd-investing that simplified financial collection and processing.
Getting the money from a customer’s wallet and into a company’s bank account can mean utilizing a different company at each of the four stages in the process – card processing, accounting, bill payment, and collection. Each of these stages has a constantly evolving set of rules that governs it, making it a significant and potentially time consuming issue for an established company, never mind a start-up.
BancBox attempts to take care of this by creating the Industry First Platform, a service that handles every stage of the financial transaction in one place. The core part of the program handles the transaction, while connectors allow the platform to communicate with card processors, banks, bill pay networks and other entities that may be involved in a transaction. The final part, the Application Programming Interface, allows clients to customize applications for the unique requirements of their business.
A simplified approach for processing capital in a new field made possible by the internet has attracted the attention of the crowd-investing community. Within a few months of launching, 18 companies, including EquityNet, iFunding, and Angel RoundUp, are using the BancBox Invest API, with more than $4 million being processed so far.
1. How difficult is it to stay ahead of those who wish to misuse clients financial information?
Admittedly it’s a game of cat and mouse. We try to leverage the best in class vendors and then augment them with our own operations.
2. How do you calm those investors and potential users/clients who have concerns about security issues?
To date, it has not been our issue as much as it is for the crowdfunding platforms that we serve. Also, there has been a lot of success with platforms like Kickstarter and AngelList so I think they have made the public more comfortable.
It’s similar to online travel. People used to shop online, but still wanted to call the airline or travel agent to complete the booking. It took a little while before that the public got comfortable with online bookings.
3. Is it more of a challenge to communicate the risks, opportunities and limitations of these services?
Yes, actually. We find that a lot of tech companies don’t understand all of the regulatory and data security issues around movement and storage of money. So, yes, we’re constantly educating our clients on the issues we face and why we need to take the steps that we do.
4. Having worked with venture capitalists for many years, can you comment on the traits the most successful share? How are their approaches similar?
We have a fantastic group of VCs. Our lead investor is Charles Moldow from Foundation Capital. From my perspective, it’s pretty simple. They want to see a business opportunity in a disruptive business model or technology, and a management team that can execute it. They’ve been a good sounding board for us as we’ve progressed the business.
5. How do venture capitalists successfully adapt to a rapidly changing climate that is still in its’ infancy?
It’s different for every firm. Some are investing earlier, some are investing in larger more expensive rounds. Some have shifted from consumer to business. It really varies.
One thing I have seen is that VCs see less need to take product risk. It is cheaper than ever to get a product built, and there are lots of angel or incubator programs. VCs are in a good spot to see a team, a product, and initial traction before investing.
6. Were there any surprises in the proposed SEC rules that were recently released? What do you like? What do you dislike?
There weren’t any major surprises in the proposed rules, though we would point out the possibility the SEC will allow credit and debit cards to purchase securities, which could lend to a new list of potential issues. We like that the SEC is requiring extensive disclosures from the company raising funds in an effort to limit fraud. Another good measure is the SEC requiring using a bank or an escrow agent to hold funds for any offering.
One thing we didn’t like were the imposed limits on how much an investor can invest based on their annual income (5% if income is less than $100K and 10% if more but not more than $100K per year) which isn’t very warming. Also, the fact that a company can’t raise more than a million dollars for a given year looks a bit limiting.
7. Was there added difficulty for you as you waited for the proposed regulations to come out, or did you have an accurate idea of what they would be?
We had an idea of what the proposed regulations might be, but no one including us had a complete picture. Though the SEC delayed them to the dismay of many, the proposed rules show the SEC has done thorough deliberations before releasing anything.
The difficulty is the delay has caused in initial limitation of the maturation of the industry and limited deal flow so far. Hopefully the SEC will get the final rules out soon after the comments period is over and won’t wait too long.