How FlashFunders is Leading the Charge in Equity Crowdfunding

Joel Anderson  |

Discussion about the JOBS Act, and in particular, Title III’s opening for euity crowdfunding, has been swirling in financial circles since the bill’s passage in 2012. What would it mean? Would this be as revolutionary as we think it might? Or will it be marginal at best? That, of course, was all discussion. Four years of speculation as the SEC did the work of hammering out rules before putting anything into action.

However, after four years, the time for discussion alone has finally come to a close. As of July 22, Title III crowdfunding was no longer purely in abstract. MobileSpike, a company developing a product that can deploy tire spikes to end high-speed chases directly from a moving police cruiser, closed its crowdfunding effort, raising $112,000 from 151 different investors on crowdfunding platform FlashFunders.

For Vincent Bradley, co-founder and CEO of FlashFunders, it was a big victory, but one that simply marked the first step in a long process of bringing equity crowdfunding into the mainstream.

“It's exciting,” says Bradley. “There's a lot of work to still be done, but it feels good to have validated the fact that this pathway is a viable solution for entrepreneurs out there to raise capital.”


The Value of Crowdfunding for Small Business

The work at FlashFunders revolves around a simple premise: crowdfunding is opening up capital markets to new players, allowing companies and businesses that previously lacked avenues to raise the money they need to expand to make moves outside the traditional system. Rather than depending on federal grants or the local bank, a business can look elsewhere, letting its ideas and products allow speak for themselves.

“Say you're a small business and maybe venture capital isn’t reaistic,” says Bradley. “You don’t have a business plan that calls for a billion-dollar business, you’re not going to be super scalable, but you have a really good business, a strong customer base, and you need to go raise a little bit of capital. Really, your only options today are SBA loans and traditional bank loans. SBA loans are not a great option for many people because you have to personally guarantee the loan, so you can lose your house, your car. Then traditional bank loans banks have really tightened their lending practices, and if you don’t fit perfectly into their box, you're not going to be able to get a traditional bank loan.

The reality is that most banks don’t understand your business. They’re just not willing to play ball with it. To me, this is the new, third pathway, an option for entrepreneurs looking for capital. They can now go out to their customer base and say: ‘Hey, do you want to spend money on my business? How would you like to own a small piece of it now?’ That makes a lot of sense. That is a no brainer from my standpoint.”

Offering a new way to raise money outside of banks and SBA loans could mean a big opportunity for a variety of businesses, but particularly those that can claim a certain degree of customer loyalty or interest. If you have group of consumers passionate about your product, you can convert them into investors.

“Businesses that have really awesome communities around them will benefit,” says Bradley. “In MobileSpike’s case, it was law enforcement. We're also seeing microbreweries having a lot of success. Consumer products are starting to have a lot of success. Businesses that have a cult following, people that are very passionate, are the ones where equity crowdfunding makes a lot of sense, and they are already starting to have success. That’s being validated.”

Even beyond startups, the importance of crowdfunding for more traditional small businesses could be huge. Particularly when you consider the way that crowdfunding within a single state eases certain restrictions, the idea of raising locally could be something that’s finally getting its due.

“I think it's brick and mortar, family-owned restaurants, your average American small businesses, which are responsible for 120 million jobs in this country, I think Title III makes a lot of sense for them,” says Bradley. “The financial review is not a huge burden for those types of businesses. Most of them probably already have an accountant they work with. They probably already have financials. A lot of these businesses already have market validation.”


Educating and Engaging the Population at Large

However, for all the potential contained within the success of a campaign like MobileSpike, Bradley is well aware that there’s a long way to go. Building a viable crowdfunding industry is ultimately going to hinge on really expanding a crowdfunding culture among investors and early-stage companies alike.

“It’s going to take time,” says Bradley. “Most of the people we talk to, they're not aware that they can crowdfund. They don’t know that it's legal yet. They don’t know much about capital financing. Our job right now is to educate an industry and educate a society. There’s a lot of entrepreneurs that aren’t familiar with this. Most Americans are familiar with crowdsourcing in some capacity whether it's a GoFundMe campaign or Kickstarter or Indiegogo, but they don’t understand the nuanced differences between equity and rewards, so we're still working on that part of it.”

That’s where a company like MobileSpike is an essential step in the process. Trying to reach out to consumers with the concept of equity crowdfunding can be difficult, but allowing them to discover it by way of a company or product that they’re excited about makes for a stronger connection in the long run.

"Overwhelmingly, the people that have supported offerings thus far on our site, their initial investment has been very company driven,” says Bradley. “In MobileSpike's case, where was a law enforcement connection there. I have a pretty good dialogue with the other founders in the space and this seems to be pretty consistent, that people are being introduced to the industry through companies that fit their vertical.”

And what FlashFunders has seen so far would indicate that, once the introduction is made, many people begin to engage even after the company driving their initial interest has closed its offering.

“What you are seeing on FlashFunders is once someone makes that first investment they're becoming very active on the platform,” says Bradley. “They might not be making second investments yet. We don’t have that many deals up at the moment, but they're looking at our other deals. They’re connecting with the founders, so once you make that first investment, we're able to introduce them to a new audience..”

Of course, one essential part of that outreach is ensuring that you minimize the sort of bad investments that drove the laws protecting consumers for years. Striking the right balance between investor protection and opening capital flow becomes a complex problem that can’t be overlooked.

“It's a double edged sword,” says Bradley. “I sit on one side as an intermediary that wants to see more liquidity, more traction, and more scalability out of the industry. But then I look at the regulators, and their goal is to protect investors. There is a real honor in that and you have to respect it, because there's a lot of people in this country that don’t have strong finance backgrounds, don’t know how to analyze a company. They haven’t made previous investments, so you want to make sure that they’re protected. I completely understand where they're coming from, but as a platform intermediary, I want to grow this industry and I want to provide capital for entrepreneurs. Entrepreneurs need capital to build their businesses and small businesses around this country. That is the reality.”

So where does necessary regulatory oversight end and the important job of opening up capital markets begin? Impossible to say for sure.

Says Bradley: “The bottom line is: there has to be a balance.”

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

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