Left Shark Approved! Equity Crowdfunding is Live

left-shark

How did I miss this?  Regular Joes like me can invest directly in early-stage startups now?  It is no longer a privilege reserved for high-earning, high net-worth, “accredited” investors?

No, sir.  You and I can be venture capitalists, too!  “Non-accredited” investors like us can be like a shark on Shark Tank!  Okay, more like Katy Perry’s awkward Left Shark, but still a shark!

And it has been this way for 6 months already!  Sorry for being a little late to the dance party, but the SEC dragged its feet for so long.  I didn’t think it was ever going to happen.  I guess I fell asleep at the wheel.

It’s called “equity crowdfunding”.  Small, private businesses in the U.S. can finally raise money from a “crowd” of retail investors in exchange for a piece of their business.  That’s right!  Straight up stock!  It’s a result of the Jumpstart Our Business Startups (JOBS) Act signed into law in 2012.  The SEC finally implemented Regulation Crowdfunding (Reg CF) in May 2016, which opens up the high-risk/high-reward world of venture capital investing to just about any American.

Here are some of the rules:

  • It seems any adult American with a pulse (like me!) can invest up to $2,000 per year under Reg CF.  You can invest more if you hit certain income or net worth limits.
  • Securities purchased by investors have to be held for at least one year.  Not a problem, because it would be nearly impossible for me to figure out how to sell them anyways.
  • Businesses can fundraise only up to $1 million.  These are small, small companies.
  • All fundraising must happen through a special equity crowdfunding portals approved by the Financial Industry Regulatory Authority (FINRA).

There are many more rules, of course.  SeedInvest, one of the portals, has an exhaustive outline of Reg CF rules on its blog.  Most of the rules govern businesses and the portals.

For investors, it’s pretty much all about how much you can invest and how long you have to hold the stock you purchased.  I wouldn’t want to spend more than a couple grand on this kind of speculation anyways.  And any investment I make will be tucked away as a long-term bet.

A living, breathing lotto ticket

Imagine discovering the next Facebook and getting in on the “ground floor” long before it becomes a $345 billion company.  Ha!  Fat chance!  Most businesses fail.  Besides, what makes you think you could pick the next Facebook from all the MySpaces in the crowd… You could easily lose every penny you invest in startups!

All true.  But, before Reg CF, most retail investors had zero chance to hit that kind of grand slam.  Yeah, you could have bought stock right around the time Facebook went public and made a nice 4X return by now.  But, if you could have invested even $100 at a $10 million valuation way before Facebook’s IPO (and not gotten diluted along the way), you’d be a multi-millionaire right now!  A little bit of an oversimplification, but you get the idea.  Actually I oversimplified this a lot.  Dilution is a significant factor that dramatically affects early investors’ returns.  More on that in this followup article.

Many of the Reg CF portals allow investments as small as $100.  It is a lot like buying a very expensive lottery ticket.  Chances are it won’t pay off.  But instead of a bunch of random numbers, this lotto ticket happens to have real living and breathing entrepreneurs behind it who are working really hard to make your ticket pay off.  And it could be a very big payday if it does!

That’s part of the excitement.  I can risk a small amount of money at the embryonic stage of a promising company for a potentially huge return when it grows up.

Investing in what I believe in

That’s the other part that excites me.  I can actually help a small company grow to its full potential.  And if I believe in the mission of the company and how it plans to serve its customers, I’ll always consider that a good investment.  Even if I ultimately lose money.

Do you feel strongly about farm-to-table fresh food?  There’s an urban vertical farming operation waiting for your investment.  Girl power?  There are empowerment camps for young women that need funding.  Urban revival?  There’s a neighborhood in Chicago that someone has big plans for.  Thrust and propulsion?  There is someone out there trying to make jetpack transportation a thing.  JET… PACKS!

No.  A few hundred bucks won’t move the needle much.  But even $100 will make much more of an impact to a startup than a $10,000 investment in most stock market small caps.

And, you get more than just a T-shirt for your trouble.  It’s not a donation like on Indiegogo or Kickstarter.  Through these Reg CF portals, you can take a true equity stake in companies you believe in.  And they often throw in extra rewards for investors… Like T-shirts!

Click, click and away!

I was actually surprised how quick and easy it was to set up an account and start investing.  It took longer to sign up for Twitter.  Seriously.

What I’m about to say may sound like a sales pitch, but I am not getting compensated by anyone.  There are no affiliate links here.  This blog makes no money.  I was legitimately shocked at how easy it was to invest through these portals given how long it took for non-accredited investors to earn the right to get into the game.  Especially since the excuse has always been, People who earn less than $200,000 a year aren’t sophisticated enough to invest in startups.  

It should be more difficult.  But there was no background or credit check, no waiting period for funds to clear, no lengthy paperwork to power through.  I didn’t even have to give my middle name.  It was easy.  Shockingly easy!

I registered through WeFunder, one of 21 portals that are up and running as of late November according to Crowdfund Insider.  They asked for my name and email.  Then I had to pick a password.  Boom!  In.

To invest real money, you enter in the dollar amount, plug in your address, pick your payment method, check 5 boxes and digitally sign.  Wapow!  You’re invested in a micro-brewery or a surf-board for golfers or a tampon subscription service.  All real investment opportunities available to you, right now!

These portals are actually very user friendly.  And everything seems to be designed to make it easy for retail investors to invest.  It’s also easy to cancel your investment.  Your investment is held in escrow until the end of the fundraising round.  You have the right to cancel your investment and get a full refund up to 48 hours before the end of fundraising.

Not much to choose from

Here’s the bad news.  There are not many Reg CF investment opportunities out there just yet.  I’ve counted less than 100 companies currently listed on all the portals combined.  Some portals are so new, they don’t have any companies raising funds.  WeFunder, StartEngine and DreamFunded are in double-digits and have the most to offer so far

With so few companies to choose from, there’s much, much less of a chance that you’ll find the next Facebook in there (or even the next Groupon).  Frankly, they could all be duds.

There are still some intriguing opportunities out there, though.  And many more companies will come.  It’s a fun new way to invest money you can afford to lose.  Maybe you’ll find something tasty to sink your teeth into.

These are my opinions.  Please do your own research before deciding what to do with your money.  

follow me on Twitter @cabbageblog

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9 comments

  1. Very cool! Thanks for sharing this, I had no idea. I like your analogy of expensive lotto tickets. I think that’s probably accurate. But it’s so cool that now anybody can basically start their own mini-venture fund. Thanks for sharing!

    Liked by 1 person

    • It is pretty cool. I had been waiting for this since 2012, then it fell off my radar. It kind of happened quietly. There was some press right away, but not really anything since then. I think it’s because the start-ups can’t really advertise that they’re fundraising through Reg CF. It’s apparently a big rule with that regulation. Thanks for reading!

      Like

  2. Wow- this is fascinating! I am so glad I saw this… as I was reading, the thing I kept thinking was how nice it would be to invest businesses I believe in, to help them get off the ground. I will definitely sign up and start looking at what’s out there. Thanks for this!

    Liked by 1 person

    • Thanks, Brooklyn! I’m sure there are at least a couple startups from Brooklyn on these sites. There should be if there isn’t. Some great companies come from there (one of my favorites, Etsy, of course). Thanks for reading! Let me know if you find anything

      Like

    • I think there are a lot more checks when you get to amounts above $2000. Yep. This isn’t for everyone. And you definitely have to go into it with the mindset that it’s a donation that you’ll never see again. So, if I find a company and concept I truly believe in, I may throw in a couple hundred bucks. I just think it’s cool that this opportunity is now available to smaller “sharks” like me. Thanks for reading!

      Like

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