Return on Change

Crowdfunding has been one of most hotly watched as well as debated topics over the last several years.  A global phenomenon, it was hailed as the entrance of a new age of funding (and now finance) that could potentially bring the world out of its stagnant and post-recessionary state. Currently best known in the realm of donations and perks based funding, countless social issues as well as products have been funded with the power of the crowd.  In the advent of this massive potential there has been recent legislative push in various regions to allow for crowdinvesting on the internet, or the crowdfunding of securities as opposed to a donations or perks based transaction.

With some of the recent explosive changes in financial regulation throughout the world, crowdinvesting will become a primary conduit of capital formation for startup companies. Traditionally, venture capitalists, corporations and high net worth angels have dominated the field of startup investing.  As technology has increased the connectivity of people while simultaneously decreasing information asymmetry, it only makes sense that the community becomes more and more active within the early stage financing industry.

In addition to tapping a tremendous potential pool of capital, the crowd brings other elements of business development to the table including validation of a business model or product by a large number of individuals prior to investing large sums of capital into development.  This has been one of the most powerful risks of startup investing and with the crowd being involved at an early stage, we can effectively mitigate the risk associated with customer development to a large extent.

Crowdinvesting not only bring tremendous opportunity to early stage businesses, but to potential investors as well.  Especially in the United States, the large majority of accredited investors are (a) unaware that they even qualify as an accredited investor and (b) have not been given the opportunity to access deal flow in potentially highly lucrative investment opportunities.  By bringing deal flow access online, the opportunities that are present to investors will increase exponentially.

Even amidst all this opportunity, there are many potential naysayers that raise points regarding the ‘higher’ potential for fraud and the sophistication that is required in order to make ‘intelligent’ investment choices.  While startup investing is not without its risks, these two primary points that are raised over and over again and highly over sensationalized and are largely mitigated with the proper utilization of technology as well as using the crowd as its own filtration mechanism.  In Australia, where early stage investing for the broader community has been permitted, there has been zero instances of fraud in its significant history and funding success.


Crowdfunding as an overarching concept of large quantities of individuals funding collectively is an exciting concept that is taking its next phase in maturity with the entrance of crowdinvesting.  Crowdinvesting will transform the capital markets and also put power back into the hands of retail investors as to what type of companies and innovations are proliferated to benefit both themselves as well as future generations.  However, in order to ensure the creation of a sustainable marketplace, all industry players as well as the market participants need to take prudent steps to both prevent fraud as well as attempt to ensure that only those deserving of funding receive it.  If you see something, say something!


This original post was shared on NewFinance’s Seminar Guide on “Crowdfunding in the US”

By Sang Lee


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Sang H. Lee
Sang is the founder and CEO of Return on Change. He's constantly searching to help startups that are looking to change the world! He's a leader in equity crowdfunding and is always happy to help entrepreneurs and startups. He previously worked as an investment banker in the energy field at WestLB and BNP Paribas, accruing a wealth of expertise in financial regulation, business, and financial structuring. Sang is also the Executive Director of CF50, a global think tank of thought leaders within the crowdfunding industry. You can find him on Google+ and Twitter.
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