Crowdfunding must evolve

By Ian Haet is the CEO of the Startup Stock Exchange a regulated marketplace for startup investing and funding.

Crowdfunding has emerged as an important financial concept across the globe. However, it lacks the most important investment principles of security, liquidity and control.  All of which are key investment principles at any stage of investment.

The concept of Crowdfunding, contrary to popular thought, dates back to the 1600’s when the first stock exchange was created with the public and “crowd” funded companies.  The Dutch East India Company used the concept to raise funds from the crowd for the risky endeavor of conducting trade between Europe and Asia. The completion of the Statue of Liberty in 1884 is another great example of successful collective fundraising.  However, it wasn’t until the financial crisis of 2008 that the crowdfunding concept took off as an alternative for small businesses and entrepreneurs.  It has come forward as a much needed alternative for investment capital that banks and other traditional funding methods were reluctant to supply

More recently, Crowdfunding campaigns have found success leveraging support from a large group for ideas and projects related to arts, music, sports and philanthropic causes.  Anyone with an innovative plan can reach the crowd to make their initiative come to life. The success rate has allowed the concept to become a financial mean for many. Hundreds of crowdfunding sites were created to boost the entrepreneurial scenario and allow the crowd to participate.

Despite the millions of dollars that have been raised through crowdfunding, a set of drawbacks, complications and risks have always existed and each day become more apparent.

To start, the lack of oversight, regulation and due diligence of both, the crowdfunding site and the company or project, increases the risks of fraud and scams Furthermore, after a successful campaign there is no accountability to the crowd of people that has provided the funding.  .

Second, company vetting prior to the launch of a campaign is the superficial.  Combined with a lack of regular reporting protocols, especially after the company’s funding goals have been reached, leaves investors with little basis to invest intelligently.

Additionally there is no investment exit strategy or marketplace dedicated to trading shares received from crowdfunding campaigns.  This all adds up to make equity crowdfunding a highly illiquid investment.

Taken as a whole, equity crowdfunding lacks security, liquidity and control.  However, these are the very principles that the Startup Stock Exchange is built on.  SSX better serves the crowd by providing a capital funding method that combines the positive social bases of crowdfunding with the benefits of a securities exchange.

SSX offers Investors access to diverse opportunities from a global pool of companies that have undergone strict due diligence.  And all the while entrepreneurs are able to reach a network of international investors without having to spend time on marketing efforts hoping to create adequate momentum that may lead them to success. They also gain the added value of ongoing mentoring and advisory from a team of experts that will give them the required guidance to develop successful companies.

The social aspect of funding from the crowd is an important concept but that funding still requires security, liquidity and control; which is exactly what SSX

Security   

Investments are made on a government regulated exchange and Investors can choose from a pool of carefully vetted companies that have completed a strict due diligence process and issued a detailed Offering Prospectus.   As publicly listed companies, regular reports are issued to Investors ensuring continued oversight.

Liquidity

Investors hold free trading shares and can sell and buy the shares via SSX. There is no minimum investment amount for the shares.  Investors can participate in both Initial Public Offerings and post IPO open market trading.

Control

Investors manage their personal investments and trading account through an online brokerage system, allowing them to decide how and when to buy and sell shares in the Startups.

The Startup Stock Exchange has combined the crowd, security, liquidity and control into a single global marketplace. SSX is the evolution of crowdfunding.