​Future of Crowdfunding Panel at Crowd Invest Summit West Delves into Broad Potential For Industry

Joel Anderson |


Those who stuck around for the final panel at the Crowd Invest Summit at the Los Angeles Convention Center on December 7-8 were in for a special treat. After two full days jam-packed with the biggest experts in equity crowdfunding and even one of the Sharks from ABC’s Shark Tank, the summit provided the nascent industry with a showcase for its potential to empower both the entrepreneurs and individual investors of America.

The final panel of the conference, though, was the most forward-looking of the event. While the two days’ prior were packed with explorations of the present legal and accounting framework that defines the present reality for crowdfunding, The Future of Crowdfunding kept its eyes fixed on where equity crowdfunding would go from here.

Getting the Word Out

The panel featured the opinions and expertise of Dr. Richard Swart, Chief Strategy Officer of NextGen Crowdfunding and the founding board member of the Crowdfunding Professional Association and the Crowdfunding Intermediary Regulatory Advocates, Katherine J. Blair, partner in Manatt’s capital market’s practice, Troy Rillo, co-Managing Partner of Thunder Crowd Capital, and Silvia Davi, Chief Marketing Officer of Equities.com. Moderated by CrowdfundX CEO and event host Darren Marble, the panel delved into the wide range of possibilities that lie ahead for the industry.

And that range is indeed vast. The panelists clearly agreed that, despite growing rapidly since its inception, the coming months and years would see the industry expand even more. However, exactly where the ceiling would ultimately prove to be was something no one could precisely speculate on. The fact remains that the potential to unlock the vast resources held by the nation’s unaccredited investors could change the face of capital flow, but spreading the gospel that far and wide is a task with a scope that is difficult to comprehend.

“It’s opened up a whole new realm of investing,” said Davi. “It’s empowered individual investors, and it’s made many entrepreneurs and startups, which Equities.com loves to cover, excited about this new investor group that didn't exist before.”

One key point throughout was that education remained a key factor to the future of crowdfunding. The industry may currently be a robust one, but it’s currently a niche one as well, with only a small slice of Americans even realizing it exists, let alone actively participating. Regardless of where the industry winds up landing in terms of its expansion, a larger segment of the American public needs to become comfortable with considering such investments as a portion of their portfolio.

In that sense, Silvia Davi noted that it was up to those in the media to lead the charge and help bring a better understanding of the considerable opportunity,- and risks - presented by crowdfunding to a much broader segment of the American public.

“It’s really up to the media, industry influencers and pundits out there to educate and communicate more on the different ways we can empower investors,” said panelist and CMO of Equities.com Silvia Davi. “Crowdfunding has become so popular because the individual investor now has access to a company that may be the next big thing, which previously they may have never been able to invest in. So the goal should be to continue to give them research and content on crowdfunding.”



Balancing Enthusiasm with Caution

Of course, there is a considerable risk in overselling the industry, something the panel discussed in some detail. The fact remains that crowdfunded enterprises stand to remain among the riskiest investment propositions out there, and without a clear understanding of that, the bad press that could follow failures if investors have expectations that are not in line with the potential for losses.

“From an overall marketing standpoint, there’s reputational risk,” said Davi. “We’ve seen this in the past. It only takes one failure to tarnish or even wipe out an entire industry. Any time you see this rapid pace of growth in an industry, you want to make sure that you’re educating your stakeholders and implementing an integrated marketing plan. If you’re an investor, and you’re thinking about which one of these many crowdfunded companies to invest in, you should look at the companies making a transition from an idea or product to an actual company with a long-term business plan. This is part of that education we have to give investors learning how best to assess which crowd-funded company to put their money in.”

If too many starry-eyed retail investors begin investing with dreams of claiming a stake in the next Facebook (FB) or Amazon (AMZN), nearly all of them will ultimately be disappointed, something that could easily create a negative perception that would seriously limit the reach of the industry. Addressing that potential is important, and the platforms and media companies are the one’s that can help investors understand just what sort of risks and potential returns they’re really taking on.

“What’s mitigating [the risk], is the investor education that platforms are required to do,” said Blair. “And I think that it’s still going to take time for grandma to learn how to invest in these companies. Because sometimes you can have a really sophisticated analysis that goes into it. Now, grandma’s not necessarily going to be looking at the biotech companies, she may be more interested in the craft beer, but investor education is a good mitigation.”

However, despite the very real reputational risks posed by failed companies, let alone outright fraud, the capacity for the industry to connect by offering a chance to invest locally and in businesses consumers are familiar with, and brands they’re loyal to could easily present an opening to introduce equity crowdfunding to the individual investor.

“For example, in the crowdfunding sector, you see the real estate is popular, the craft breweries are popular, because it is attracting certain types of investors,” said Blair. “And it’s the retail investors who have a consumer base already.”

That window is one that could be essential. While the long-term potential of equity crowdfunding may not contain the sort of unicorns and massive success stories coming from venture capital, the potential for smaller consumer companies with strong localized appeal to unlock the potential of their customers as investors could be precisely what gets the ball rolling.

“You’re not going to invest $7,000 in a brewery,” said Dr. Swart. “But you’re willing to put in a couple of hundred dollars and get a mug.”

Education To Fulfill The Promise of Equity Crowdfunding

Ultimately, the odds are stacked against crowdfunding ever expanding to the size that its most ardent believers consider it capable of. However, even if equity crowdfunding doesn’t prove as revolutionary as some might hope, its potential for tremendous growth remains. As the panelists explored at The Future of Crowdfunding, equity crowdfunding doesn’t have to be completely disruptive to the finance industry in its entirety to still provide great value and opportunity to investors and entrepreneurs alike.

However, the idea that communication and education was essential to the industry’s continued growth was a major takeaway from the panel. The mere existence of equity crowdfunding alone can’t be expected to keep things moving forward.

“Just because you put it out in the ether doesn’t mean people are going to come running,” said Blair.

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. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 181.29 1.49 0.83 26,826,540 Trade
AMZN Amazon.com Inc. 1,294.58 1.26 0.10 4,578,536 Trade

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