Equity Crowdfunding Problems – Let’s Start With Where’s All The Money?
Equity crowdfunding problems are impossible to ignore considering the top ten equity crowdfunding websites raised less than $100 million collectively during the first nine months of 2020. With years to ramp up and grow why isn’t this number much higher? Say… a billion dollars?
Crowdwise recently published a groundbreaking article on the top ten equity crowdfunding websites and let me tell you it’s eye-popping. The depth and breadth of the research and data is impressive- Wall Street Journal worthy – in bringing equity crowdfunding problems to light.
Funny enough, this astonishing industry-wide failure to raise more money in equity crowdfunding was first noticed by the SEC a few years ago. Check this out.
An over-arcing source of equity crowdfunding problems stems from a lack of motivation in everybody. The crowdunder seems satisfied with raising way less money than their funding goal, typically $1.07 million under Reg CF, and the crowdfunding platforms seem to be perfectly happy with this too.
Why on earth for?
Why WOULDN’T the company seeking an equity crowdfunding raise want to hit the full $1.07 million? Do they think that $100,000, $200.000, $300,000 etc. is enough money? Apple has one of the largest stockpiles of cash on planet earth with freighters of new profits coming in from all over the world yet they recently did a bond offering anyway. Apparently Apple (and Google and Microsoft, etc.) hold the opposite view that you can’t have enough money in the bank. What do they know that you don’t?
The same question needs to be asked of all of the crowdfunding platforms. Since they make money on every investor dollar that comes in, why on earth don’t they walk through walls and swim across oceans doing whatever they can to get their funding levels up? Let’s use WeFunder as an example. Quoting directly from their FAQ:
For Regulation Crowdfunding, Wefunder charges investors up to 2% of their investment (minimum: $7, maximum: $75). We also charge the company up to 7.5% of their total funding volume for Regulation Crowdfunding.
WeFunder stands to make as much as 9.5% in platform fees on the money raised. Why are they, and all of the other equity crowdfunding platforms, happy when a campaign raises so little? If nobody is striving to get a campaign over the hump of a hypothetical $300,000 plateau, shouldn’t senior management be annoyed they’re leaving $66,500 in platform fees on the table IF that campaign were fully funded?
If I were running any crowdfunding platform – equity or reward – Me and my team would work tirelessly and relentlessly to raise as much money as possible for every campaign. That creates a true win-win. Some people may be thinking that it’s impossible for every equity crowdfunding campaign to be fully funded.
Veteran securities and finance attorney Professor Irwin Stein, Esquire thinks otherwise. Here’s an except from his recent book “Professor Stein’s No-Nonsense Guide to Successful Equity Crowdfunding” (available as a free download on his website):
An intelligently planned, well-funded, and professionally executed crowdfunding campaign should be successful in raising the funds desired every time.
His book supports his statement. Spoiler alert: The core principle of success is marketing.
Simply put, equity crowdfunding problems don’t have to exist. They shouldn’t exist. If everybody gets out of their own way truly great things can happen.