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What Industries Stand to Benefit the Most from Crowdfunding?

By  +Follow November 26, 2013 10:04AM
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One of the biggest changes wrought by the JOBS Act was the expansion of the potential pool of investors to include people of all different incomes and wealth. Previously, one had to make at least $200,000 a year (or have assets in excess of $1 million) to get a crack at acting as a venture capitalist and providing seed money to budding young companies before they went public. Now, that’s all going to change. Smaller investors will be limited in the size of their investments (individuals making $100,000 a year or less will only be able to invest $2,000 or 5 percent of their income, whichever is more), but they will have a chance to use their cash to purchase equity in private companies.

Crowdfunding Creates a New Investment Landscape

Also interesting is the lifting of restrictions against soliciting investors for capital. Companies looking for investors no longer need to carefully court them through controlled interactions with a broker as an intermediary; they can advertise online and try to reel in the people who can help their company grow. This solicitation is only available to those companies that exclusively court accredited investors (and subsequently eschew the first-mentioned change in regulations), but it still changes the way companies can pursue funding.

But how might these things change the face of investing? In both cases, selling the idea that’s driving your company is potentially becoming more important. Having a core business plan that captures the imagination of the general public could help open a company up to a whole new strata of capital, either by helping companies with an imaginative driving idea access previously unavailable investors or by allowing a company to take their business plan to accredited investors more aggressively than was previously legal.

Some Sectors Benefit More Than Others?

But this could mean a shift in what industries and segments see the most seed capital. For instance, your micro-cap oil & gas company may be sitting on a lease with monster shale reserves that just require an initial investment of capital to tap into, but are you going to be able to explain the reason why your property is so valuable to someone who’s not a PhD geologist or industry expert with a decade of experience? If so, your situation probably hasn’t changed much. However, have a promising new idea for solar technology? Odds are the fact that your business operates in a promising new segment that can capture the imagination of a potential investor could mean these new rules are going to change your situation a great deal.

Only time will tell which sectors and industries are going to get the biggest boost, but it’s not hard to imagine the direction things could take early on. Here’s a few industries that may see an extra pop because of their ability to pitch their business ideas more effectively:

Entertainment

Much of the recent buzz about crowdfunding has its sources in the early forms it took on sites like IndieGoGo or KickStarter. Here, people could raise money for their projects and charities from the crowd in exchange for token prizes. In this case, though, there was no equity involved. People were effectively giving away their money. And, in some cases, to people who stood a real chance of profiting from the enterprise. So, Zack Braff, who was a successful TV actor for years, made $350,000 an episode on Scrubs, and has an estimated net worth north of $20 million, managed to convinced his fans to donate over $3 million to his indie film Wish I Was Here (which had a budget of just $2 million) despite the fact that Braff would, not only have zero obligation to share any profits with his backers, be legally obliged not to share any money the film might make. Hmm.

Given that fans appear more than willing to offer up financing without any promise of returns (aside from, you know, a T-shirt or something), there doesn’t appear to be much motivation to shift to an equity based model. However, it stands to reason that if fans were willing to pony up millions for this or the Veronica Mars movie for naught but a T-shirt, offering up a chance at sharing in a project’s potential profits should only make it easier. And the potential here, for an industry with the entire nation’s attention, is enormous.

Tech

It probably isn’t a stretch to say that the sector that should greatly benefit from crowdfunding is the tech sector. Tech has long been the “sexiest” of the sectors, offering up plenty of stories of insane returns on early capital. And with new social networking platforms springing up left and right, investors ready to make several high risk/high reward investments will have their chance to throw up some Hail Marys as they seek out the next Twitter (TWTR) or Facebook (FB) . And get used to that pitch. “It’s the next Twitter!” looks to be a popular one for the foreseeable future.

Biotech

Two words tend to incite excitement whether reasonable or not: miracle cure. Could these new crowdfunding rules mean we’re headed towards a new era where the traditional traveling snake oil salesman is replaced by the micro-cap biotech company? Perhaps. Could we also be headed towards a world where medical innovations have an ample supply of cash to invest in research and development of life-saving new drugs? Indeed. Either way, while the physiology and science behind these efforts may be difficult, the potential of curing disease could be enough to keep the average investor’s interest piqued.

Green Energy

Retail investors are probably more likely to try and make a statement with their money, and early crowdfunding efforts (of the non-equity variety) leaned heavily on progressive charities. Well, now there’s a way for a nation of solar and wind power believers to put their money where their mouths are. Energy companies looking to remake the landscape of American utilities are likely to find plenty of able and willing investors happy to plop down cash to help get projects off the ground. It’s a new way to vote with one’s pocketbook, only with a potential for returns that your local environmental charity could never provide.

Dumb Money?

Or course, the assumption that all the new capital opened up by the JOBS Act will be dumb money is probably a flawed one. Like any market, one should expect consumers to gravitate towards decisions that best serve their interests. What’s more, as start-ups start failing (and lets not forget that the vast majority do), there should be some clear tightening of the purse strings. In the end, oil exploration companies could be looking at just as generous a supply of seed capital as solar companies. However, at least in the near future, the fact that there’s money to be raised by selling one’s company to the public should benefit those companies that are easily sellable the most.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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Results for TWTR
John Leak
24 Nov 14 09:48:15
Starting tomorrow we'll be running a free chat room sharing trading ideas. Check us out here: http://t.co/K0DLKHk3g9 $FB $TWTR $DDD $AAPL
kpricestox
24 Nov 14 09:47:53
$twtr movin. testing 5 ema
Ben Obadia
24 Nov 14 09:47:29
$TWTR looking really good long here
RC
24 Nov 14 09:47:23
Nice movement from $TWTR here
Habib El Amiri
24 Nov 14 09:46:17
@MartinLuptak1 $TWTR has more potential to generate revenue than it did when it first went public. http://t.co/h69tHiRsUi
Ryan Braun
24 Nov 14 09:43:43
RT @jimcramer: Yes, when a new ceo is appointed RT @JDR1024: @Stephanie_Link @jimcramer Does $TWTR ever go up anymore?
Stephen Byrd
24 Nov 14 09:42:31
RT @jimcramer: Yes, when a new ceo is appointed RT @JDR1024: @Stephanie_Link @jimcramer Does $TWTR ever go up anymore?
The Deal
24 Nov 14 09:41:25
RT @jimcramer: Yes, when a new ceo is appointed RT @JDR1024: @Stephanie_Link @jimcramer Does $TWTR ever go up anymore?
Cesar
24 Nov 14 09:41:24
@JustinPulitzer @optionmonster @RedDogT3 $TWTR seem to be moving here.. need volume
LaszloTheDog
24 Nov 14 09:38:58
.@jimcramer @Stephanie_Link On positive note mediocrity has its rewards for $TWTR, $EBAY & others if serially selling weekly covered options
$
24 Nov 14 09:37:32
$TWTR Just remember Shorty once twitter gets mad and rips your baby Momas margin accounts to zero and into negitive digits Daddy warned you
Russell Barbour
24 Nov 14 09:33:50
http://t.co/UGmFYPcbp4 <<-- Tandem Trader dvd video #stocks #trading $FB $TWTR $EYES $PTNR $HURC
OptionsGenius
24 Nov 14 09:32:34
@Weeklyoptions dont forget to reach out to me incase of questions on thanksgiving deals . $spy $fb $twtr
Carolyn B Miciano
24 Nov 14 09:31:49
Maximize potential from weekly options http://t.co/gtZSrqEINx $AMZN $FB $TWTR
$
24 Nov 14 09:31:14
$TWTR back over forty BUY BUY BUY BUY cmon peeps don't let evil Shorty get us back under $40 If the raiders can win a game $TWTR can rebound
Girolamo Aloe
24 Nov 14 09:30:16
RT @timothysykes: Only a few more weeks until the brand new http://t.co/mHlHGziYmQ software is ready, are you excited $FB $TWTR $LNKD peeps?
Flux
24 Nov 14 09:25:39
$TWTR making them run for cover!!!
Robert Comandari
24 Nov 14 09:21:36
RT @jimcramer: Yes, when a new ceo is appointed RT @JDR1024: @Stephanie_Link @jimcramer Does $TWTR ever go up anymore?
Steve Sears
24 Nov 14 09:21:16
RT @jimcramer: Yes, when a new ceo is appointed RT @JDR1024: @Stephanie_Link @jimcramer Does $TWTR ever go up anymore?
Jboy
24 Nov 14 09:20:51
$TWTR breaking above short term trendline. next is long term trendline. chart https://t.co/Az57w8gKHF via http://t.co/zZmy9RCyzN
Informer
24 Nov 14 09:20:48
last: $39.82 12:05pm EST 11/24/2014 change: -0.21 day high: 40.02 day low: 39.58 open: 39.99 volume: 6776531 $TWTR
Kieran
24 Nov 14 09:20:10
No fight in this dog. $TWTR http://t.co/mHYd2gTk2C
Catalyst Trader
24 Nov 14 09:20:01
$TWTR back above $40. Ecommerce "Buy button" on the way soon imo.
$
24 Nov 14 09:19:58
$TWTR Shorty trying scare u into panic selling so they can get your little pussy ass bitches shares dirt cheap u cant fool big daddy
tradersjekan
24 Nov 14 09:19:54
$twtr
Nick Vitani
24 Nov 14 09:19:12
$TWTR ripping
KING ALLIANCE
24 Nov 14 09:18:41
$TWTR 🚅 leaving the station!
Future Tech Investor
24 Nov 14 09:17:55
$MXWL $11 pivot break $TSLA $TTM $FSLR $GME $SCTY $ZNGA $SUNE $LOCO $C $ARIA $TSL $TSEM $CIMT $WDAY $Z $MU $ZU $FB $TWTR $JD $WB $AA $GERN
$
24 Nov 14 09:15:45
$TWTR take a look you smug short fucks daddy bringing the pain up into your pieholes anybody else wanna bet 30pack miller high life ?
Edijs Gribusts
24 Nov 14 09:15:43
this chart shows that any day now its time for $twtr to move with the trend of break out http://t.co/l6xaGF9c9d
Jose D
24 Nov 14 09:15:26
RT @jimcramer: Yes, when a new ceo is appointed RT @JDR1024: @Stephanie_Link @jimcramer Does $TWTR ever go up anymore?
Sam TheTraderGeek
24 Nov 14 09:15:17
@gilmoreport Considering that the Implied Volatility percentile rank in $TWTR is only 14%, they're not being compensated for the added risk.
Tyler
24 Nov 14 09:13:28
@t_nathan95 Just too much risk and not my type of investing to take the long trade on $TWTR in stock
Tyler
24 Nov 14 09:12:56
The potential for a massive pop in $TWTR is so enticing. I wish I had access to options, would look for some cheap calls around 50
Jakekap5
24 Nov 14 09:12:38
RT @jimcramer: Yes, when a new ceo is appointed RT @JDR1024: @Stephanie_Link @jimcramer Does $TWTR ever go up anymore?
Lockingprofits
24 Nov 14 09:12:09
Most of u are making your evaluations/valuations via what someone on $TWTR or @CNBC tells u... How could u even start to trust that??
Jim Cramer
24 Nov 14 09:11:02
Yes, when a new ceo is appointed RT @JDR1024: @Stephanie_Link @jimcramer Does $TWTR ever go up anymore?
moderneconomist.com
24 Nov 14 09:07:30
RT @timothysykes: Only a few more weeks until the brand new http://t.co/mHlHGziYmQ software is ready, are you excited $FB $TWTR $LNKD peeps?
David Mighdoll
24 Nov 14 09:06:12
RT @kaylatausche: Biggest challenge for $TWTR as a public company? "Thinking long-term," despite near-term pressures. (c/o @biz on @SquawkA…
Derrek Brooks
24 Nov 14 09:04:32
RT @George323818: $NHMD Nate’s Food Co. Announces Export to Canada and 25 Additional Countries - Yahoo Finance $MINE $TWTR $FB $AAPL http:/…
Lurkin Lucas ⚽️3⃣6⃣
24 Nov 14 09:01:18
RT @timothysykes: Only a few more weeks until the brand new http://t.co/mHlHGziYmQ software is ready, are you excited $FB $TWTR $LNKD peeps?
Timothy Sykes
24 Nov 14 09:00:57
Only a few more weeks until the brand new http://t.co/mHlHGziYmQ software is ready, are you excited $FB $TWTR $LNKD peeps?
trendspottr
24 Nov 14 08:56:25
RT @robpas: Did Dick Costolo get into a Fair Disclosure issue over the weekend at UMich on loose talk of 140+ Characters? $TWTR http://t.c…
Stockaholics
24 Nov 14 08:55:13
578% Gains On Penny Stocks in one month! Plus a New Pick Is Coming: http://t.co/2W3yKD2d5Q $Q $TWTR $YY
Selfish Investing
24 Nov 14 08:52:56
I'm often amazed at the drivel on http://t.co/ZdblRthYCy: some guy recommending that investors sell puts on $TWTR...are u kidding me?
Gilmo Report
24 Nov 14 08:52:56
I'm often amazed at the drivel on http://t.co/XvRtbzDfbK: some guy recommending that investors sell puts on $TWTR...are u kidding me?
danrocks
24 Nov 14 08:48:07
$TWTR Hitting Buzz $TWTR $KORS $IBM $UGAZ $TBT http://t.co/mTATwLLoJ0
Sheetz
24 Nov 14 08:46:51
@jimcramer <-- another day "up" in the market & another day "lower" for $TWTR. Where's the push for @dickc to be removed?
Robert Passarella
24 Nov 14 08:46:13
Did Dick Costolo get into a Fair Disclosure issue over the weekend at UMich on loose talk of 140+ Characters? $TWTR http://t.co/rGhNsHAJyF
$
24 Nov 14 08:43:16
RT @kaylatausche: Biggest challenge for $TWTR as a public company? "Thinking long-term," despite near-term pressures. (c/o @biz on @SquawkA…
				
				
By  +Follow November 26, 2013 10:04AM
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