The list of people with a decade’s worth of experience in crowdfunding is short, but Paul Niederer is on it.
Mr. Niederer is a featured speaker at Metropole Global’s 2015 Alternative Funding Forum, taking place on Friday, Nov. 6 at the Century Plaza Hotel in Los Angeles. It features diverse business financing tools and alternatives including angel investing, venture capital, debt and crowd capital.
Mr. Niederer has been involved in more than $75 million worth of transactions involving 90 companies in search of capital. He consults on portal development, processes, and regulations.
In a sense Mr. Niederer has been involved in equity crowdfunding longer than the name itself.
“When we began we did not know what we were doing was equity crowdfunding,” he said.
Ten years ago Australian legislation allowed only 20 unaccredited investors to be involved in an equity deal. The government was being pressured from small businesses burdened by the legal requirements in a situation reminiscent of the troubles faced by American businesses faced with tens of thousands of dollars in legal costs to be SEC-compliant.
The Australian government recognized the need to assist SMEs and set out to create a more responsive funding environment, Mr. Niederer said.
Because of his experience in Australia and in other countries in the ensuing decade, Mr. Niederer is asked to share his experience across the world. He was a member of a delegation that went to China to discuss crowdfunding and how it could assist the Chinese economy.
“Not a lot has changed. There is not much evidence of fraud and fraudsters in the space.” – Paul Niederer
“We went to get things started there,” Mr. Niederer said. “We wanted to start a conversation.”
There was plenty to talk about, Mr. Niederer said. One similarity between Chinese and American internet-based service companies such as Alibaba, Google and PayPal is they all have adopted versions of western platforms, he said.
Mr. Niederer has watched as different countries address topics like equity crowdfunding. They tend to go through similar stages, such as addressing fraud-related fears.
“Three years ago I gave a speech in Orlando (on fraud), and last month I participated in a session with Dara Albright,” Mr. Niederer said.
“Not a lot has changed. There is not much evidence of fraud and fraudsters in the space.”
Companies wishing to equity crowdfund are publicly structured entities with numerous barriers to be overcome by anyone wishing to pull a scam. There are easier ways for scammers to make money online, Mr. Niederer suggested.
And it is not as if the traditional financial system prevents any untoward activity. Many of the biggest frauds have been perpetrated by people certified as financially responsible individuals, Mr. Niederer said.
“In a Ponzi scheme, people simply rip off their clients,” Mr. Niederer said. “An equity crowdfunder has to create an entire entity – rules, directors and outline responsibilities.”
“It is plenty of hard work.”
Mr. Niederer sees blockchain as having a key role to play in future transparency efforts. In most places an intermediary needs a retainer to handle a raise. One way to get around that is to create a system where trust is embedded in the transaction.
“If activity is recorded in the blockchhain, everyone uses the same ledger and transactions are recorded, regulators can check if transactions are outside of normal behavior.”
Crowdfunding allows people to have greater influence over the direction their community takes by giving them an avenue to create projects that matter to them, Mr. Niederer said. Perhaps a group wants to build some wind turbines to help generate energy. Future regulation should allow them to do so, he predicts.
“If people can get involved it is beneficial to all of society.”
While it pays to look at the Australian and United Kingdom experiences for hints at where legislation may be headed, when looking at the development side of the industry, the United States is the trend setter, Mr. Niederer said.
There are many other active regions who are assertively seeking to close the gap, Mr. Niederer said. One is London, England, which is moving quickly to build a fintech hub through 100 percent tax credits and other measures.
“There is a trend toward cities positioning themselves as centers,” Mr. Niederer said. “In a sense it takes us back to the old days of Italian city states.”