Equity Crowdfunding Dissected

Docracy has posted a video of last Thursday night's Legal Stuff Explained: Equity Crowdfunding Dissected event in Brooklyn.

The panelists were Larry Baker of Bolstr, David Rose of Gust, and I. Veronica Picciafuoco of Docracy pulled us together and moderated the discussion.

I learned a lot.

Larry's company, Bolstr, is "crowdfunding" today, in the sense that they have designed their platform to manage deals that rely on Rule 504 of Regulation D. That means the companies that utilize Bolstr can include non-accredited investors in the deal, but the platform has to be designed to keep track of the different state regulations that come into play. For instance, one state may allow only a certain number of residents within that state to participate; but another state may have a cap on the number of non-accredited investors that can participate, period, without regard to state of residence. It's a morass, but Bolstr means to automate the navigating of the differing rules and make that capability a competitive advantage. Bolstr is looking to assist non-tech companies, and in that regard reminds me of CircleUp and some of the other initiatives that have a local focus and social mission.

David, whose platform, Gust, facilitates angel investing, had an original and compelling idea about the security that should be used in equity crowdfunding: revenue loans. Part of what I like about this is it solves the liquidity problem, because investors would be buying an instrument that begins to return capital as soon as the crowdfunding company generates revenue. David suggested that investors take 5% of top line revenue until they get 1x their capital back, then two and a half points until a 5x ROI cap is hit. It's fair to say that part of what David is thinking is that a growth company needs to be able to shed its crowdfunding investors if and as it later seeks angel or venture capital.

There were plenty of good ideas from the audience, which included crowdfunding evangelist and frequent wac6.com contributor Jonny Sandlund.

Paul Spinrad, the founding parent of the movement to change US law to allow equity to be crowdfunded, has a RocketHub campaign going to fund the making of a transcript of the event. Please consider donating to the campaign. As of this writing, the campaign has $120 to go to hit target.

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