Sharon M. Davison

A New View On Crowdfunding

In Capital Formation, Crowdfunding, Portals on April 25, 2012 at 3:10 pm

Last week I attended an all-day conference on crowdfunding, sponsored by DealFlow Media. I must admit I was skeptical that they could keep my interest for the whole day. They did and then some. I want to share a few of the things I took away from the conference.


I gained a better sense of who the ideal issuer is for crowdfunding. First I think the existing crowd of creative issuers may float between the nonprofit and profit crowds. If you are a young start-up movie maker the non-profit crowd with a tee-shirt to the investor may make the most sense. But as you begin to make a name in the independent film world, or any creative endeavor, a for profit crowd might find an investment of interest. The second type of issuer is the local business—corner gourmet grocer, bakery, clothing store. These are small business people who are not going to turn into large chains but want to provide a living for themselves and their families.

Does this mean that an issuer might not move up the capital formation chain? Certainly some issuers may in fact find that the local gourmet grocer finds traction and is a chain someday.


I think I had assumed along with others that people looking to invest in the crowd were going to think this was the same as investing with their broker. What I found at the conference was that investors in the crowd while hoping for a profit also have benevolent interest in the investment. That interest could be in helping underserved communities get the seed money to start a business, an interest in the arts, or an interest in helping an enterprise with which they transact business. I was told by Sherwood Neiss, Co-Founder of The Startup Exemption, that the average investment in the crowd is expected to be around $80.  An individual investing $80 is not expecting to negotiate terms or to make a huge profit.


I think the most interesting group of people I met at the conference where those who are going to be running the funding portals. Contrary to what the general expectation has been of the “shady” character selling securities out of the back room of a bar, the people I met were intelligent, financially savvy and fully committed to providing a fair and fraud free environment for both the issuer and investor.

Final Thoughts

I think the next 9 months are going to be interesting. The SEC can over regulate this new industry or it can work with it to provide a new and different type of capital formation mechanism for companies that heretofore have not had access to capital other than through loans from banks that have been reluctant to lend.

I still think that this industry needs regulation but as with all new industries that are now computer and social networking based we have to be aware that the regulations fit the technology and the concept behind the innovation.

(C) Copyrighted 2012 Sharon M. Davison. Reuse with attribution.


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