Industry experts from several sectors spoke on the current state of crowdfunding and where they see it headed in 2014 at a morning roundtable at the Global CrowdFund Expo Friday in San Diego.
Continued progression of regulation was a common theme. Attorney Douglas Ellenoff, a partner in the firm Ellenoff, Grossman and Schole, looks forward to the ending of the comment period for Title 3 of the JOBS Act on Feb. 3. He sees the final rules resulting from this process as providing much-needed guidance that will ensure clarity for the industry moving forward. Mr. Ellenoff is an acknowledged leader in compliance and regulatory issues.
OfferBoard CEO Chris Tyrrell highlights the resolution of Title 2 and continued clarity of Title 4, aka Regulation A+, two factors that will enable the industry to grow rapidly in the next 12 months.
Since Sept. 23, $35 billion in Regulation D offerings have been generated through the limited area of general solicitation that is currently available, according to Mr. Tyrrell. Many companies are doing so directly and not through platforms, which leaves investors open to additional risk. He states regulation and built-in site safeguards provide investors with more avenues of protection when working through a platform.
Peer-to-peer lending is in an interesting phase, says Ethan Senturia, CEO of Dealstruck, a company working with small businesses that are not yet at the bank stage. With an over-supply of capital compared to the amount of available deals there is money sitting on sidelines itching to get into the game. In 2014 the market will see the most driven investors moving on deals earlier and earlier as they seek to get in on the highest quality offerings. This will allow businesses to grow at an accelerated pace. Many panelists agreed with Mr. Senturia on this.
No sector is growing at a pace anywhere near private credit, offers Direct Lending President Brendan Ross, describing it as being in “hyper-growth” territory. 2014 will see increased talk of bubbles given the 10 percent monthly growth rate currently being experienced.
Asset Avenue CEO David Manshoory describes the attractiveness of commercial real estate and how individuals with passive (smaller amounts of) capital to invest cannot enter this desirable sector by traditional methods. Ironically, many projects with limited financial histories need this passive capital and crowdfunding allows the two to benefit from each other.
This year will see more campaign entrants, predicts Propellr CEO Todd Lippiatt. Many operators are waiting to post until they find the ideal site to handle their campaign, and as regulation allows more sites to come on line, these companies will begin to sign in. More experienced entities are paying attention he adds, and the types of deals will change as they begin to participate.
Equity Net CEO Judd Hollas compared crowdfunding sites to online dating in the sense there are a few major players alongside many more niche sites catering to specific subsets. A key to success will be regulatory compliance, he says, while also citing the importance of education and of raising awareness for what crowdfunding means to entrepreneurs. Community building, investor education and client preparation will be key facets of successful platforms.
Mr. Hollas suggests people to look back to the 1990’s and the emergence of companies like E-Trade. They focused on education, analytics, and anything that empowered people to make their own decisions without an adviser’s help.
Critical mass needs to be achieved overall or within your niche in order to be successful, but take caution to make sure your product has high scalability and is automated because it is at risk if it is too human-intensive. OurCrowd Vice President Audrey Jacobs concurs while adding successful platforms will be marked by the intensive due diligence they perform for their investors.