Since the JOBS Act of 2012 first went into effect, senior commercial real estate debt – offered via real estate “crowdfunding” platforms – has emerged as a popular fixed-rate investment for accredited investors.
These investments offer superior returns to Treasury bonds and other traditional fixed-rate vehicles, however, you may often notice a curious omission: There is no information about the lender.
If you want to exercise your new right to invest in innovative startups and growing small businesses, where will you start — which funding portals will you visit to find the best offerings of private securities? For many people who have little or no experience evaluating angel investment opportunities, the best place to start is a website like Stratifund.
Many of the companies that sell securities via Title III crowdfunding portals, at least in the first year or two, will be early-stage startups with little or no history of profit or even positive cash flow.
“In many cases, issuers can avoid thorny disagreements over valuation by offering hybrid securities known as convertible notes to crowdfunding investors”…
In this article I profile a pioneer in the securities crowdfunding world: 99Funding, a broker-dealer-affiliated funding platform that currently features Regulation D offerings (for accredited investors only) and plans to introduce Title III offerings this month.
The aspect of the JOBS Act that has the potential to touch the largest number of Americans is Title III (“the crowdfunding exemption”).
Do you need to know about equity crowdfunding? If you are a typical reader of The Corporate Counselor, the answer is yes, but only in connection with the potential future acquisition of, or investment in, a company that raised money by equity crowdfunding.
There are important distinctions between funding portals and broker-dealer platforms. Funding portals are a new type of intermediary created by Title III of the JOBS Act, while broker-dealers have been established market makers for many decades. A broker-dealer can be an individual or a company.
The potential rewards of angel investing are not just financial, though. There are also strategic benefits, which may include:
Crowdfunding, or crowdfinancing, is a method of collecting many small contributions, by means of an online funding platform, to finance or capitalize a popular enterprise. As crowdfunding is so new, there is much confusion in the marketplace about it—for example, many people still think of Kickstarter as the epitome of crowdfunding.
The first step in the seven-step crowdfunding investment plan is to calculate the maximum amount of money that you are allowed to invest each year in Title III offerings.
Supporters of crowdfunding acknowledge that some fraud will probably occur, as it does everywhere—including the public securities markets. But they point to the low instance of fraud in rewards-based crowdfunding in the United States, and in equity-based crowdfunding in Australia (since 2006) and the United Kingdom (since 2012), where unsophisticated investors participate in private securities offerings.