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Regulation Crowdfunding: Still Flying Under the Radar for Many Investors

Regulation Crowdfunding: Still Flying Under the Radar for Many Investors

The Advent of Crowdfunding

The earliest known record of group funding, the Irish Loan Fund, occurred in the 1700s to help low-income families in Ireland get access to capital that banks were unwilling to give them. By the 1800s, hundreds of similar efforts were underway with up to 20% of all Irish households participating in this type of alternate financing. In 1976, “micro-financing” began in Bangladesh to provide seed money to women in small bamboo-producing villages. Within five years over 30,000 members participated, and the fund now has more than 8 million borrowers.

The first recorded history of group funding over the Internet began in 1997 when a group of U.S. fans raised $60,000 to woo a British rock band into playing an unscheduled concert in the states. The band, Marillion, thanked “the crowd” for funding their trip and modern “crowdfunding” was born.

As access to the internet proliferated, so did the number and type of crowdfunding offers.  With names like ArtistShare, Prosper, Indiegogo, Peerbackers and Kickstarter, crowdfunding efforts continued to provide access to capital that traditional financing, like banks, were unwilling to provide. Some of the more popular crowdfunding sites, GoFundMe, FundRazr and Classy are already becoming household names.

In their 2017 annual report, the Cambridge Centre for Alternative Finance (CCAF) showed the continued, strong growth for crowdfunding with 24% year-over-year growth and $42.8 billion in funds raised. From 2013 to 2017, the market grew at an average of 88.5% each year, with the U.S. market accounting for a total of $121.7 billion.

Regulation Crowdfunding Demystified

A lesser-known type of crowdfunding is call Regulation Crowdfunding, or Reg CF as it’s often shortened. Covered under Title III of the Jumpstart our Business Startups (JOBS) Act of 2015, Reg CF permits anyone to invest in securities offerings of private businesses up to certain investment limitations.  By approving Reg CF, the Securities Exchange Commission (SEC) provided an easing of security regulations intended to increase the funding that flows to small businesses in the United States while also opening up participation to everyday citizens.

Why Haven’t I Heard About Reg CF (Regulation Crowdfunding)?

Don’t feel behind the curve if you’ve never heard of Reg CF. Research indicates that less than 3% of all Americans are aware of the benefits of Reg CF. However, the tide is changing. Amongst other popular applications, Reg CF is growing quickly in the real estate market. Online portals, like EquityDoor.com are providing alternative financing to investors of all types who are interested in the expanding real estate market but who have been locked out from investing in the past by traditional banks and financing restrictions. In fact, the same CCAF study reported specifically that real estate crowdfunding experienced dramatic growth of 129% in 2017, reaching $1.9 billion in the U.S. alone.

How Does Regulation Crowdfunding Impact Me?

While Reg CF has its limits (it caps projects at $1,070,000 over a 12-month period), it provides the legal avenue for equity crowdfunding. Equity crowdfunding is focused on the online offering of a startup or private company’s securities for investment. Investors from the crowd are given shares (equity) in the private company in exchange for their cash investments.

For those investors who are interested in real estate projects, portals like EquityDoor use the Reg CF guidelines to open the door to equity exchange amongst investors in real estate projects they would never have been able to reach in the past. Project owners can raise capital to fund their real estate efforts and interested investors can participate in those same projects with as little as $1,000.

There are many real estate projects that could benefit from Regulation Crowdfunding. Are you looking to free trapped equity in a rental property without having to sell?  Would you like to flip a property but don’t think you have all the expertise to do so? Are you looking to diversify your portfolio by investing in real estate but can’t buy a complete property on your own? Or maybe you have the ideal commercial property and need funds to improve it to get maximum resale value? Equity crowdfunding might just be your answer.

We’re interested in hearing your thoughts about equity crowdfunding and learning about your projects. Join us at EquityDoor.com.