There’s a lot of talk around Regulation Crowdfunding but what’s the most important takeaway from the 585-page tome?
For investors, the crowdfunding provision it a good thing. Non-accredited investors should be allowed to buy shares in private companies as long as they’re well aware of the risks. Investing in companies is certainly no less risky than playing the lottery or taking a weekend trip to Las Vegas.
If crowdfunding becomes widely adopted, it could lead to more private companies being created—and potentially at high valuations. While more doesn’t always equate to better, in this case it would mean average Americans are enabling more people to take a swing at starting companies, become the CEOs of their own destiniesand spur job growth. It’s a pretty incredible opportunity to be able to participate in something that can make a difference.
Now for the Catch-22:
For companies, the crowdfunding opportunity is a last resort. A huge disadvantage to the crowdfunding model is that it is unlikely that this investor base would be able to provide significant help beyond funds. The best investors provide more value than money—they provide experience, connections and advice. You want the best people for your company at the table—not the most people. In addition, there is the concern of managing a lot of people on your cap table. The management can be even more difficult with unsophisticated investors. Furthermore, some estimate that complying with the disclosures and regulations outlined by the SEC can be time consuming and costly.
When raising money there’s only one thing to keep in mind: It’s about more than just the money.