There’s no hotter topic in South Carolina right now than politics, for obvious reasons. With both major parties hosting presidential debates in Charleston and Greenville over the last month, and with primaries scheduled for this weekend and next, the political process is in full swing – and full throat.
For those of us in the startup funding world, there’s another hot topic that is entering a primary season of its own. On May 16, long-awaited crowdfunding rules will go into effect allowing entrepreneurs to sell equity in their businesses via crowdfunding equity platforms. Prior to May 16, startups can only raise funds from accredited investors (who meet income or net worth standards established by the Securities and Exchange Commission), but the new rules allow any person to invest, with certain restrictions on how much based on income and wealth.
The outcomes on both the political and crowdfunding fronts have the potential to create momentous implications – or to end up being much ado about not a whole lot, with little ultimate practical impact.
We will leave the political analysis to the pundits, but on the crowdfunding front, we are willing to take a partisan point of view. In general, we are in favor of increased access to capital and less friction and restriction regarding how individuals choose to allocate their resources. We hope that equity crowdfunding will ultimately provide a more efficient and accessible market for allocating capital to worthy startups of many stripes – while providing adequate returns for the risks taken by investors.
However, the risks associated with the brave new world of equity crowdfunding will be significant for both entrepreneurs and investors, particularly in the short term as the market adjusts to the new rules. With nearly 600 pages of SEC rules governing the implementation of Title III of the JOBS Act, which authorized equity crowdfunding, there will be inevitable pitfalls to navigate.
We don’t have space here to enumerate all the issues we anticipate from the equity crowdfunding rules, but suffice it to say there will be a high burden for entrepreneurs (and crowdfunding platforms) to remain in compliance – both in time and money. So our advice to entrepreneurs is to tread carefully, do your due diligence on any crowdfunding site you use, and make sure you engage a knowledgeable securities lawyer. Additionally, be aware that if you do raise money via equity crowdfunding, the complexities and risks of having many small, unaccredited shareholders may dissuade other investors (including UCAN and SCAN) from investing in later rounds.
For would-be investors, the new rules will allow access to a new world of investment opportunities – many of which will surely be of dubious quality – so we continue to stress the importance of looking past the hype with thorough due diligence (which of course is one of the key benefits of angel groups like ours).
We will be keeping tabs on the impact of the new rules and will likely write more on the topic as some of the dust settles after implementation. In the meantime, given the current intersection of the two hot topics of crowdfunding and politics, it’s an ideal time to announce our newest investment from UCAN and the South Carolina Angel Network: Crowdr.tv.
Crowdr.tv, based in Charleston, is a (non-equity) crowdfunding platform that is the first to incorporate live streaming into its user experience. Like other legal crowdfunding sites on the market today that help launch new products via pre-orders or that raise funds to support causes, Crowdr is not raising equity investments for companies. Instead, Crowdr for the first time allows a fundraiser to live stream a message to an audience while simultaneously collecting funds for a cause.
The company’s first use case, not surprisingly, is on the political fundraising front. The founders of the company, Michael Stevens and Zach Pippin, have extensive backgrounds in campaign marketing and digital strategy, and they have observed firsthand the declining effectiveness of email campaigns and static fundraising sites. They developed Crowdr to give candidates an opportunity to engage with their audience with transparency on a much broader scale than local town halls, with more richness and engagement than typical email solicitations.
By integrating the Crowdr.tv sessions with Facebook, Crowdr allows the “Crowdcaster” to reach a wide but connected audience than can potentially grow virally as comments and questions are shared on participants’ timelines. For politicians at local and national levels who require a steady stream of funding to keep campaigns alive, Crowdr gives them a highly effective new tool to enhance their fundraising efforts.
Of course the platform is not limited to politics – other nonprofits and educators can use it too. A Midlands school has already signed up to raise funds during an upcoming student play, and Venture Carolina will use it to offer a pitch workshop on Feb. 25.
While the eyes of the nation are on South Carolina in the coming days for primary season, Crowdr aims to keep those eyes coming back for a long time to come. UCAN and SCAN are proud to support the Crowdr team, and regardless of your politics, we hope you’ll check out a Crowdcast soon at crowdr.tv.