Crowdfund Capital Advisors Shares Data that Shows Investment Crowdfunding Benefits More Democrat than Republican Districts. So Why Don’t Democrats Provide Greater Support?

Investment crowdfunding under Reg CF (Regulation Crowdfunding) supports opportunities for smaller firms. Issuers raising money using Reg CF may raise up to $5 million while selling securities to both accredited and non-accredited investors. Firms must utilize the services of a FINRA-regulated Funding Portal or Broker Dealer to pursue the online funding round. To date, hundreds of millions of dollars have been raised to help smaller firms. Securities may be debt or equity, SAFEs, and more.

While the data is good and there has been little abuse of the exemption, most support comes from Republicans. As most people say they support entrepreneurs and small businesses, it would seem that online capital formation generates more bipartisan support. In fact, when the JOBS Act of 2012 became law, it was supported by both sides of the aisle and signed by then-President Barack Obama. Today, there is too little vocal support for smaller businesses from Congress and the Administration.

Recently, Sherwood Neiss of Crowdfund Capital Advisors (CCA) delivered a presentation at the CfPA Summit in Washington, DC, where he shared that the majority of money raised by smaller firms using Reg CF originated in Democratic Congressional Districts. He believes that both Democrats and Republicans need to focus more on small business and fostering investment in these businesses.

“On one end, we have one party using tax cuts to stimulate business growth, while the other uses tax hikes to create more opportunity. In reality, both should focus their attention on the segment of our population that represents the majority of businesses and creates nearly half of the U.S. economy—small businesses. Attention here would be a first in decades, refreshing in its approach and appealing to Main Street Americans. It would build a much stronger America than either party’s current plans,” says Neiss.

CCA’s data breaks down between Republican and Democrat districts as follows:

  • 2.67X more deals are launched in Democratic districts compared to Republican districts.
  • For every $1 invested in a Republican district, $3.36 is invested in a Democratic district.
  • Nearly 3x more investors are found in Democratic districts.
  • 4.2x more jobs are created in Democratic districts than in Republican districts.
For every $1 invested in a Republican district, $3.36 is invested in a Democratic district Click to Tweet

Part of the reason more money goes into Democrat districts may be due to the concentration of these regions in urban centers.

So why don’t the Democrats provide more support for smaller firms? Investment crowdfunding specifically?

Too frequently, Democrats focus on investor protection at all costs. The thesis is saving you from yourself. Of course, investing in smaller/early-stage firms is risky, but that is how a market economy works. And, boosting the opportunity to support firms when an investor is also a customer makes a lot of sense, as interests align. Perhaps Democrats are throwing the baby out along with the bathwater?

In the past, CCA has also published data that indicates that online capital formation supports minority and female founders far better than VC firms.

One of the goals of the CfPA is to get legislation signed into law that will provide tax exemptions for private firms that raise money online. This can provide a twofold benefit: First, smaller firms gain access to capital for growth, driving prosperity and creating jobs, and second, investors in these smaller firms can see their risk mitigated thus addressing the concerns of certain Democrats that do not support securities crowdfunding.

As the Presidential election is just around the corner, and neither party has directly commented on online capital formation, the impact of the election is unknown for securities crowdfunding. Hopefully whoever is elected takes a closer look at the facts of investment crowdfunding and decides to support the ecosystem.

 



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