What are going to be the key impacts on crowdinvesting in the next 18 months?

Posted by The Eureeca Team on Aug 25, 2013 12:39:00 AM

Even though everyone in Eureeca has been involved in crowdinvesting for the last 2 years, for most people it is still a very new industry. We are confident that the momentum that is currently causing a trickle of demand and interest in the space will erupt into a tidal wave of activity over the next two years. Crowdinvesting is here to stay. It will be the de facto mechanism through which entrepreneurs and business owners raise the funds in the future. We are all going to look back at this in 10 years’ time, and wonder how we, as business owners, and investors could ever survive before crowdinvesting, just like we look back now and wonder how we ever survived without the internet and social media 10 years ago.

As with any industry, the early adopters will shape the direction the market goes in. Through our support of the lobbying activities to push forward and enact the JOBS Act in the USA and our founding status as one of the the key global crowdinvesting trade associations, we have been working to shape this industry from day one.

Here are our thoughts on what will be the major themes over the next 2 years:

1.   It’s an ecosystem and different platforms will consolidate

Whilst at the moment the current number of platforms operating in the equity crowdinvesting space are focused on their home market, very soon these platforms will need to go global. We have been creating an operating model that provides a global solution, allowing for businesses from all over the world to participate in crowdinvesting, and there are miles to go before we sleep. The larger the ecosystem of SMES raising funds or investors looking to make investments the more efficient it becomes, giving better funding opportunities to entrepreneurs, more choices for investors and more support services to be provided for both parties to the transaction. Therefore it makes sense for crowdinvesting platforms to expand and grow into other markets.

However, the best platforms will be the ones who have a significant offline presence as well. There are many offline touch points in the relationship with the SMEs and the investors.  Many services that are provided to SMEs fly beneath the radar of the average user of  the crowdinvesting platform in order to support entrepreneurs.

Alternatively, we see bigger companies potentially following the e-commerce model and look to acquire local firms that have an existing local footprint, thereby obtaining the ready made offline required touch points.

What’s the result of this?

More similar offerings to allow for interoperability of platforms via a common standard, be that programming language, information requirements or just plain old philosophy. The positive here is that a common set of standards will emerge and be peer reviewed until accepted. However let’s hope that any such move to consolidation still gives the end user a democratic choice.

2.   Platforms will specialise

There will be many platforms that emerge over the next two years that will NOT be open to the public, rather they will operate behind closed doors/high walls on one vertical or sector, normally set around an affinity group. For example, we have had a request from a Doctors Association that is looking to coordinate crowdinvesting of its member’s ideas for new medicine/clinical trials. This would only be available to its members who are investing in areas they understand well.

What’s the result of this?

There will be the opportunity for exceptionally focused and educated investment being made at the right time in the right place by the right people. This goes to the core of the community based democratic funding solution that crowdinvesting is.

3.   Regulation will change and shape the industry

As with any financial asset, be it property, shares, swaps or insurance, what traditionally happens is that when a product (or industry) is born, only then will regulators, once they have had a chance to view the asset in action, come in to provide a regulatory framework to support that asset class.

This is what is happening in the crowdinvesting industry and it is something to be welcomed.

Regulators want this industry to work. They see its immensely transformative social impact. SMEs need funding, and the traditional routes have failed them. The world needs jobs, and SMES provide 70% of all jobs. SMEs needs funds to employ people, and according to the Forbes and SEC IPO Task Force, 90% of hires are made after a company gains funding. The mandate of every government is job creation. The means of doing that is deployment of capital to SMEs. Crowdinvesting does that. It’s an essential tool of public policy.

Eureeca has worked closely with regulators in various countries, including being the lead participant in the writing of a crowdinvesting law.

We believe strongly that this industry should be regulated. Crowdinvesting should operate with the highest standards of compliance. Many of us in the industry are setting a standard that regulators can follow - a lodestar by which the industry can navigate.

What will be the outcome?

What is important is that the industry continues to work closely with regulators to ensure they fully understand the method by which we can meet high standards of investor protection. Each country has its own idiosyncrasies and therefore it is right and proper that each regulator follows its own path, however it is important that here are certain agreed set of fundamental principles.

We have one chance to get this right, and set the right foundation for a century of crowdinvesting - I’m happy to say the industry is very focused on doing exactly that.

4.      Different support services will emerge providing collateral services

As with every great industry there are multiple layers of participants. Crowdinvesting is no different. There will be platforms such as Eureeca providing the environment for the transaction to take place, but there will also be many other firms providing specific, crowdinvesting ancillary services. Some of which we have personally seen emerge in the last 6 months alone are:

-          Firms which help SMEs create a crowdfunding proposal

-          Firms which perform additional compliance checks on crowdfunding SMEs

-          Firms that provides specific technology tools to platforms such as communication and payment (escrow) gateways

-          Firms that provide outsourced compliance, legal and administrative work specifically for crowdinvesting

So, what’s next?

What is for sure is that the industry is here to stay. It will grow bigger than we can imagine and evolve in all sorts of different ways. We are proud at Eureeca to be at the forefront of this development and look forward to shaping the industry for years to come.