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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
Red's in Ramsay
20 Aug 14 22:56:52
Why Twitter Is Borderline Cheap $TWTR $FB $GSVC http://t.co/5QgjL8P96o
FARES EL AROUI
20 Aug 14 22:56:33
RT @SeekingAlpha: Why Twitter Is Borderline Cheap http://t.co/tvFd9eZz6n $FB $GSVC $TWTR
Antoine Larigaudrie
20 Aug 14 22:55:58
RT @SeekingAlpha: Why Twitter Is Borderline Cheap http://t.co/tvFd9eZz6n $FB $GSVC $TWTR
Seeking Alpha
20 Aug 14 22:55:40
Why Twitter Is Borderline Cheap http://t.co/tvFd9eZz6n $FB $GSVC $TWTR
Financial News
20 Aug 14 22:51:24
$TWTR: Twitter Scrambles Against Dissemination of Foley Video http://t.co/nNhNg3fcQ3 http://t.co/aAVjnudozO
Investors Hangout
20 Aug 14 22:36:33
$ATVI Summary http://t.co/ALE1qhxWdP Also See: $WEF.TO $DBA $TWTR $DBA ~
Jacob Joseph
20 Aug 14 22:28:33
“@SciencePorn: (Via @Suggest) http://t.co/XGzqZzdRMW” #wtf this is the porn I heard about on $TWTR -you sick f****rs!!
Jacob Joseph
20 Aug 14 22:24:30
I am a $TWTR addict!!! I'm off the wagon!!! two years ago I sucked d*** for #followers!!! -I don't regret a thing -maybe the dick?
Vedu
20 Aug 14 22:15:54
RT @sean_a_rose: I'm shorting $TWTR until they can figure out that they need to center the timeline in their web app.
Jacob Joseph
20 Aug 14 22:15:42
Is this Tourette's anonymous? It sure as hell looks like it! $TWTR
Jacob Joseph
20 Aug 14 22:11:28
Asia is trading and everyone is fucking asleep! Is this $TWTR or http://t.co/vpUmmAIKL2!????
jonas quinn
20 Aug 14 22:09:37
“@stockassassin74: @jonasQuinn23 what is FMV for $TWTR in a $GOOGL take out?”I'm expecting $75/sh
Jacob Joseph
20 Aug 14 22:07:25
Guess whoops baaaaaaacccckkkk!!!! $TWTR I was not sent here to destroy you-I'm here to annoy you!!! Bwahaha habana
sean rose
20 Aug 14 22:01:02
I'm shorting $TWTR until they can figure out that they need to center the timeline in their web app.
Investors Hangout
20 Aug 14 21:48:58
$ALXN Last Trade http://t.co/OndfaGg9gj Also See: $TWTR $BAA $BBRY $AEM ~
Chasing Stars
20 Aug 14 21:25:10
$AEM Short Sales http://t.co/i8ERveNwiY Also See: $TWTR $ANET $HCP $JPM ~
StockExpert
20 Aug 14 21:12:24
Police Murder Today Caught on Tape https://t.co/rg6OBWHTT2 $SPY $DIA $QQQ $FB $TWTR $AAPL $MSFT $GOOG $INTC $BAC $C $JPM $WMT $KO $FOLD $XLF
moderneconomist.com
20 Aug 14 20:53:20
RT @timothysykes: Today Is Different http://t.co/91D9tYAH9a really take in my meaning here $FB $TWTR
Financial Headlines
20 Aug 14 20:51:25
$TWTR: Twitter policing content: beheading video, plus images of deceased http://t.co/yf4H1diSa1 http://t.co/Uxbsq2H8dW
Timothy Sykes
20 Aug 14 20:50:20
Today Is Different http://t.co/91D9tYAH9a really take in my meaning here $FB $TWTR
Investors Hangout
20 Aug 14 20:48:39
$AAPL Ask Size http://t.co/shwS1grqLX Also See: $DIA $XLP $TWTR $EBAY ~
fazo
20 Aug 14 20:45:13
@TommyBalz @Monkeeyy13 @Weeb644 im riding $FB $TWTR $INVN $CELG $ACT $HAIN and eventually $FEYE to promise land
Navi Avatar
20 Aug 14 20:23:12
China pmi 50.3 shows EU and rest of world slower growth. Yellen will be more dovish at Jackson Hole imo $SPY $AAPL $FB $TWTR $ISRG longs
Catalyst Trader
20 Aug 14 20:22:56
RT @Benzinga: What Video Ads Can Do For #SocialMedia http://t.co/KJjgk165Wp $TWTR @DXagency @UdallTechStrat
Manuel Deschamps
20 Aug 14 20:16:46
@bolton I hope he buys $TWTR
Lynn Halstead
20 Aug 14 20:14:14
@TheStalwart The good thing about CNN running live feeds on $twtr. We don't have to watch.
Steve Burns
20 Aug 14 20:11:03
RT @MichaelGLamothe: $twtr riding the 8ema via @LTeeitup http://t.co/YvjmssxVIv”
M0derateEc0n0mist
20 Aug 14 20:09:08
Each additional follower will reveal a trade as well...specs $AAPL $GM $TWTR $S
Stockaholics
20 Aug 14 20:07:28
$GLBH closed up 150% today! Major Update: http://t.co/nHv4FnEmKE $Q $TWTR $YY
BUZZ Just-In
20 Aug 14 20:07:00
Track curated news and tweets for multiple tickers- US Tech Giants http://t.co/mrOcYa4Clq $MSFT $TWTR $AAPL $FB $GOOG
Jeff Focker
20 Aug 14 19:54:59
$TWTR fail 1y chart is very interesting. Kind of an inv h&s. Weekly too although there's not enough data. 72 again? http://t.co/umvtxwW9Mg
Financial Headlines
20 Aug 14 19:51:28
$TWTR: Twitter shows how its bots keep your timeline spam-free http://t.co/OYpnr5XV7S http://t.co/RspMIIp6t7
mustped
20 Aug 14 19:49:47
The official $TWTR Android app is a joke. Talon all the way.... smaller memory foot print and more useful features
Jeff Focker
20 Aug 14 19:49:46
$TWTR macd almost flat and in a very tight channel between 44.5-45.5. something should give next week.
Mark Purcel
20 Aug 14 19:45:21
@WallStJesus $TWTR MAR $60 call I would BTO should hit around 55 to 60 by march.
STRAT Trading
20 Aug 14 19:41:30
@jack god forbid - thanks for the coverage - buy side $twtr holders appreciate all your hard work
Michael Lamothe
20 Aug 14 19:40:15
$twtr riding the 8ema via @LTeeitup http://t.co/E3C3RVy47d
Daniel
20 Aug 14 19:36:45
RT @Benzinga: What Video Ads Can Do For #SocialMedia http://t.co/KJjgk165Wp $TWTR @DXagency @UdallTechStrat
Stock007
20 Aug 14 19:36:08
RT @Benzinga: What Video Ads Can Do For #SocialMedia http://t.co/KJjgk165Wp $TWTR @DXagency @UdallTechStrat
Claus
20 Aug 14 19:26:08
$TWTR momentum's gone until we're back > 48, selling calls until then https://t.co/Mx9uXyIwPD
Eric
20 Aug 14 19:25:57
RT @PipsToDollars: Guess I did good with my $TWTR and $FB Calls Why Facebook and Twitter Continue to Get Bigger http://t.co/n6q6TD3VpJ
Dave
20 Aug 14 19:21:35
So unfortunate to learn that @Twitter is #polluting our timelines with #injectedtweets we dont want. http://t.co/gSRDEHXaPp $TWTR
Hasanna Hosanna
20 Aug 14 19:06:37
RT @TCBFx: The Closing Bell is out! http://t.co/J4DVRW3NmN $EURUSD $GBPUSD $USDJPY $AUDUSD $SPY $TWTR $GPRO $YHOO $LNKD $FB $AAPL $BAC $GS …
TweakTown
20 Aug 14 18:58:34
.@Twitter unsure how to handle James Foley beheading video, images (by @MHatamoto) $TWTR http://t.co/RxwS3CKLTN
Stock Headlines
20 Aug 14 18:51:32
$TWTR: Rieder: How to handle the beheading images? http://t.co/VlQiaBKCAg http://t.co/qq9BEqNfBw
Mr. Smith
20 Aug 14 18:41:24
20 Aug Tactical Setups: $PCLN , $GWPH , $TWTR , $FB , $BIDU , $CNX , $CLVS, $DDD , $SSYS - Go over some... http://t.co/zXiHgPs09g
DXagency
20 Aug 14 18:16:47
RT @Benzinga: What Video Ads Can Do For #SocialMedia http://t.co/KJjgk165Wp $TWTR @DXagency @UdallTechStrat
Joanna Valdez
20 Aug 14 18:16:17
RT @AmericanBanking: Twitter Sees Large Decline in Short Interest $TWTR http://t.co/BIPWZBzHI0
Eric
20 Aug 14 18:14:06
RT @stt2318: Still not too late to sign up for my free webinar tomorrow! http://t.co/QcVtR9oxCw $fold $gpro $twtr $fb $lnkd $spy $iwm #s…
Steve McCabe
20 Aug 14 18:08:22
@TMFJMo @ArMKay101 $DIS, $AAPL, and $TWTR
				
				
By  +Follow November 26, 2013 10:04AM
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