This is a guest post by Kiran Lingam, a corporate and securities lawyer and regular writer and speaker on crowdfunding and the JOBS Act.

Issuers and portals would alsobenefit from crowdfunding for groups. From their perspective, adding crowdfunding to existing organizations and communities will be far more effective than trying to build communities around crowdfunding campaigns for the following reasons:

1.  No One-Off Community Building.  In a typical crowdfunding campaign, a new community has to be rebuilt for each individual campaign.  With a group centric campaign, a community already exists and that community can be used to connect with other communities to create exponential growth.

 2.  Built in Channels / Concentric Groups.  A group would likely develop set of other groups that is consistently shares deals with, providing built-in outside distribution channels for its companies and members.  

3.  Internal Vetting Process.  Each organization can create an appropriate internal vetting and conduct due diligence based on standards customized and acceptable to its members.

4.  Existing Trust; Fraud Concern Reduced.  The concern of fraud is greatly reduced when the issuer has a pre-existing relationship with the organization and has cleared the organizations internal vetting process. Investors will feel more secure that the campaign is not a scam and will feel more comfortable in putting their money to work.

5.  Built-in Lead Investor.  The most successful structure would likely include a trusted member of the community acting as a lead investor, negotiating terms and championing the deal.  

6.  Pre-Qualified Audience.  Hit rates will be far higher by launching into an audience known to be interested in your space.  

7.  Initial Validation leads to Campaign Momentum.  High initial hit rates will lead to greater hype, momentum and press coverage, which will bring in investors from outside of the community.

For these reasons, I predict that crowdfunding will become group centric rather than portal centric.  In this way, SeedInvest is way ahead of the game with its SeedInvest  Groups product.

What else?  How else could issuers and portals benefit from crowdfunding through existing groups?

Caveat: All of this is subject to regulatory limitations (for equity crowdfunding, but not rewards crowdfunding) and the pending SEC rules.  Implementation of Title II and Title III of the JOBS Act by the SEC is likely required in order for groups crowdfunding to become a reality.

The information on this blog is not a substitute for professional legal advice. The opinions expressed herein are the solely the opinions of the author and not of any law firm, employer or organization affiliated with the author. Nothing in this blog shall create an attorney-client relationship, nor is it a solicitation to offer legal advice. If you ignore this warning and convey confidential information in a private message or comment, there is no duty to keep that information confidential or forego representation adverse to your interests. Seek the advice of a licensed attorney in the appropriate jurisdiction before taking any action that may affect your rights.

 

 

This post was written by ryanfeit on May 9, 2013

7 Benefits for Crowdfunding through Existing Groups


Top