It was a very big day for American investor rights yesterday.
The SEC voted to enact the final portion of the JOBS Act, known as “Title III.”
This makes “equity crowdfunding” legal. In other words, for the first time in over 80 years, ALL U.S. citizens, regardless of their income or net worth, will be able to invest in start-ups. Generally speaking, this is very exciting—but almost no one is talking about the potential downside here:
During the SEC vote, the phrase “investor protection” was used 15+ times—but the only significant thing the SEC is doing to protect investors is to limit the amount they can invest. If citizens are going to have a chance at protecting themselves (and hopefully, making money) in this market, they need guidance and education.
The media will tell you your Grandma is about to get gutted by hucksters.
She might.
But she was also getting pitched 3D printing stocks and the safety oil income trusts a few years back by her ‘registered’ financial advisor.
I have always believed investing was a right, not just a privilege in this country. I was making angel investments in my 20’s well before I was accredited.
Last year, Social Leverage (our fund) invested in Crowdability.
They offer education, data and screening services to help investors. Founded 18 months ago, Crowdability now has a jumpstart on educating investors in this space. And in just a short time, nearly 100,000 people have joined their service.
In their words below…the founders (Matthew and Wayne) believe demand has been so robust for a few reasons:
1. We are completely independent— we don’t take outside advertising from platforms or issuers. This way, our research and education can be completely unbiased.
2. We promote education first: Before anyone subscribes to our data & ratings service and starts investing, we encourage them to complete our 12-lesson online course on early-stage investing.
3. We’re bridging an enormous gap in the market: Today, if someone were to call their financial advisor and ask their opinion about a start-up they found online, their advisor would be ill-equipped to respond intelligently.
They have spent the past year recruiting a panel of professional VCs and angel investors (I am one of them) to help them build their education and research services. It’s the closest an individual retail investor will come to getting “professional advice” in this market.
Interesting point, Howard. Educating prospective investors is definitely important, but I wonder how much it will really be utilized. In my experience, those that are interested in active investing are those that are already wanting to do the research themselves. The other (read most) people simply don’t want to be bothered with it. If they want to invest at all, they’d rather put their money in SPY or something similar.
I wonder if that’s what’s really needed… a company that will do the “leg work” on qualifying legitimate opportunities and then creating an investable fun based on that knowledge.
Regardless, curious what you think in terms of quality of companies that may choose this route of funding. Some I’ve talked to believe companies that go the crowdfunding route are, by default, the weak companies that wouldn’t be able to raise from traditional channels.