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Forum: The Present and Future of Crowdfunding



Assenova: Thank you for agreeing to participate in this forum. Let me begin with a bit of a challenge: Is crowdfunding merely a fad? If not, how does it represent a “revolution” in finance?

Karas: It’s a little bit of a false dichotomy. All funding is essentially crowdfunding. Hedge funds are crowdfunded -- it’s just from a different kind of investor. The idea of crowdfunding is to take that same model to retail investors. So, I don’t think it’s at all a fad, it’s an expansion of a well-worn -- and frankly, a very successful -- idea.

Ellenoff: I would suggest that securities crowdfunding is no more a fad than online trading was with e-Trade. It was timely then and not even an interesting conversation now, just commonplace. I would characterize it to be more of an appropriate evolutionary response in the age of the Internet.

Suber: I will be bold enough to say that I promise you that it’s not a fad: it’s a mega trend. The amount of benefit that borrowers and investors are receiving is unprecedented in financial history.

Moon: Equity crowdfunding is revolutionary because it can dramatically open up access to both investors and entrepreneurs. Entrepreneurs who had no or little access to capital all of the sudden have access to deep pools of capital and other resources. On the other side, investors can discover investment opportunities that were very hard to access at scale. Currently, there’s almost $300 million in open investment opportunities on CircleUp, and this represents just a fraction of what it could be.

Neiss: Access to capital has always been a challenge, so this is providing an alternative solution to getting that money that was not there before. I don’t think it’s going away. The data show that this space is evolving rapidly and continues to evolve. It represents a revolution in finance because we have finally allowed securities laws to catch up with the way in which we live our lives today, which is online and in the Internet age.

Karas: The revolution comes from figuring out how to let retail investors participate both in the “feel good” aspect and in the financial aspect. One thing that crowdfunding offers that traditional funding does not is that the companies that go through crowdfunding want to reward the people who have supported their businesses and to create a community. There’s the added element of investing in your local coffee shop and investing for more than a return. You see this at places like Kickstarter and Indiegogo. I think that crowdfunding combines those two aspects: your money is put to work, but you are also investing for returns other than the economics.

Best: We have just about seven years of experience now in crowdfunding [in the United States], including equity and debt, and about four years in the United Kingdom. And we have, by some estimates, $33 billion worth of funding across equity, debt, and rewards crowdfunding. So, if that’s a fad, then it’s a fairly large fad, and a fairly long-running one. My own belief is that it is not a fad, but that it is a fundamental way in which the financial markets will function going forward.

Cagney: But I think we’re in the very nascent stages of crowdfunding, in terms of what it can be used for and how it works, or how it could work. There’s been a lot of enthusiasm about the JOBS Act, that it would democratize finance and really open up the opportunity for crowdfunding. That hasn’t happened yet as the JOBS Act has been hamstrung on so many dimensions. It’s too early to say how crowdfunding will actually pan out, but at this stage in particular it has had a lot of hindrances from a regulatory standpoint.

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