With 2014 finally at an end and 2015 just kicking off it is that time of year when predictions on the future of crowdfunding roll in. Crowdfund Insider has already published more than a few interesting predictions for 2015 and we expect more to follow. Predictions are more fun than fact as the ones that are wrong rarely get highlighted but those which are correct are continuously touted. The thought meisters at Nesta have already predicted a spectacular failure from the new forms of finance – something described as a coming of age event. Crowdfund Insider Senior Contributor Ludwine Dekker has declared 2015 to be the year of mergers and partnerships in the crowdfunding space. Sam Guzik is on the record foreseeing a future that includes positive final rules for Title IV or Reg A+ as it is known. So now it is time for Crowdfund Insider to chime in and add a few opinions on what the future holds for the world of new forms of finance in 2015.
1.Title III of the JOBS Act will receive much needed legislative assistance.
Title III of the JOBS Act, dubbed crowdfunding by the authors, effectively legalized retail crowdfunding. While this portion of the Act held much promise early on, reality has set in as final rules have never materialized. The intrinsic flaws incorporated in proposed rules has effectively killed any hope for Title III to work. Crowdfunding portal liability for issuing companies? Why would you do that if you wanted Title III to work? The list continues with an arbitrary cap on funding amounts and excessive disclosure. Congress will do it right this time and fix these flaws and the President will sign it into law as he needs a few more checks in the win column in the final days of his administration. There is a lot of consensus on this prediction so we are joining the pack. The unfortunate thing is this issue will not be at the top of the list for the incoming Congress but expect a new Jobs Act in the first half of 2015.
2. Title IV finally comes to life.
Title IV of the JOBS Act will finally receive its much anticipated final rules. I am with Sam Guzik on this one. Commissioner Gallagher has stated public that he expects Title IV rules would see the light of day before Title III. Guzik states that Title IV will “start 2015 off on a high note – and a bang”. Being able to raise up to $50 million for small companies has generated some excitement in the halls of wall street firms. The new “Reg A+” may be the catalyst that brings a new generation of small companies to life. Q1 we should finally see rules on this part of the JOBS Act.
3. State Blue Sky Preemption sticks.
When the SEC boldly brought state Blue Sky pre-emption into the mix on Title IV this was a big deal. While NASAA, a special interest group that represents state securities administrators and wants to keep state Blue Sky Review, has fought this one long and hard there is chatter that preemption will be incorporated into final rules. And why not? The states still have all the power of anti-fraud laws to gun for malfeasant types. David Weild, former Vice Chairman of NASDAQ, called for NASAA to stand down. They won’t but they will move on to other pressing issues.
4. The United Kingdom will continue to be the innovators of new forms of finance.
Ok this one is a “no brainer”. FinTech is hot in the UK and much of what has occurred across the Atlantic has set a global tone for what other countries should emulate. From Mini-bonds, to convertibles, to REITS, to ISA inclusion, the list goes on. We expect a growing portfolio of creative offerings coming from the Brits. The unfortunate thing about all this is that US regulators will continue to ignore the empirical data being generated by our friends. The UK has experienced dramatic growth in all forms of new finance, in part boosted by incentives such as the SEIS and EIS tax programs. In equity crowdfunding there has, of course, been failures but zero fraud. Facts & data counts. This is one area the US should be learning from the UK.
5. Indiegogo will move into equity crowdfunding.
Indiegogo has made it no secret they have been keeping an eye on final rules forthcoming from the SEC. Hybrid offers of rewards and investment will become the norm. Indiegogo understands this and they want to lead the way. Kickstarter has stated they have no interest in equity crowdfunding. With a global brand, a sizable war-chest, and high profile investors like Sir Richard Branson, Indiegogo will have a clear path to establish its platform as a prominent participant in the investment landscape. They may even go global but that is a prediction for 2016.
6. A major financial institution will acquire or invest in a P2P lender
Sure banks are slow to adapt but then years of punitive regulations plus finger pointing from all directions have made the banking industry a little bit gun shy. Sure some of it is deserved, but our legislative class should shoulder more of the blame – something they are unsurprisingly not that interested in doing. Eventually the aircraft carrier will turn and decide it is time to get into the game in a bigger way before it is too late.
7. The EU will propose a common approach to crowdfunding.
Europe desperately needs growth. One recent presentation suggested there is a huge funding gap for small companies. Europe does not have the same funding culture that the US benefits from. Yet it is these same SME’s that create jobs and add value for all that are in dire need of sources of capital. Tepid economic growth should be a call to arms within the halls of the EC and every nation’s capitol. While a proposal may be forthcoming it will fall short. But it will be a start.
8. Some investment platforms will merge or wither.
Ludwine Dekker is spot on with this prediction. A growing number of investment platforms will merge or form substantial partnerships to bolster operations. Smaller investment banks will move more aggressively in the space as well creating more competition and opportunity. While not a full blown consolidation, smaller platforms will find support in forging alliances.
9. Real estate will continue to lead the crowdfunding charge.
Real estate is a natural for investment crowdfunding. Both debt and equity finance is generated more efficiently online. More old school firms will embrace technology because they will realize it is not healthy to stand in front of a moving train. Real estate investment online comes of age in 2015.
10. Rewards based platforms will be more aggressive in campaign assurance.
Indiegogo has already tested crowdfunding insurance. They will figure it out too. There have been too many high profile failures that have left backers with nothing more than a bad taste in their mouth. If you want users to keep coming back to use your platform you need to find new and creative ways of making certain they are not backing the next Kreyos watch or “scampaign“. If they do not do this – an enterprising Attorney General will decide to make his or her name in challenging these crowdfunding platforms. That is an event that no one will enjoy.
11. A new definition of Accredited Investor is embraced.
While changing the definition of an accredited investor may not be high on the list for policy makers, fixing the currently flawed definition simply makes sense. Exclusionary rules that segregate and disenfranchise segments of the population are misguided. While economic standards will remain, a new path via a test of some sort or academic or professional credentials will more people to participate in previously blocked investment opportunities. This is one where right will win but towards the end of 2015.