On Oct. 30 (2015) the Securities and Exchange Commission adopted final rules to permit companies to offer and sell securities through crowdfunding, making it easier for smaller companies with capital formation, while providing investors with additional protections.
Concurrently, the crowdfunding world experienced some interesting and monumental changes, hinting at what is sure to be recurring growing pains and growth spurts as companies and investors get familiar with this “new normal.”
It appears no one is immune to the changes and evolution of the crowdfunding industry.
Stockholm-listed TrustBuddy recently filed for bankruptcy, and declared it would no longer operate in any form (soon after it had been suspected of misusing client money). One of the reasons given for the bankruptcy is there was too much non-performing debt in its portfolio, which raises the question about how transparent and sustainable can the peer-to-peer industry be. Can P2P truly disrupt traditional retail banking? Despite this being European news, it’s certainly turning heads on this side of the Atlantic.
The fall of TrustBuddy has led to calls for greater regulations and due diligence in Europe, but may also be a sign of a major market shakeout in the world of crowdfunding. Couple this fallout with news of US/UK-based Funding Circle (another P2P lender) acquiring rival funding platform Zencap, and what’s become evidently clear is that “alternative” finance is fast-becoming a highly competitive market where even big names (like Rocket Internet, behind Zencap) are willing to cash out rather than invest toward growth.
On Oct. 22, 2015, NASDAQ acquired SecondMarket, expanding the stock market conglomerate’s reach into the trading of shares on private companies. This bit of news is particularly intriguing because it could indicate NASDAQ’s eventual involvement in its own equity crowdfunding platform.
This move, interestingly timed just before the SEC’s final adoption, hits at a future where shares in private companies are freely traded (as it is with public companies).
The passing of Title III of the JOBS ACT will cause a massive spike in interest involving equity crowdfunding, not only in the U.S. but around the world. The changes we’ve witnessed in just a few short weeks indicates that what we’re witnessing here is an accelerated development of an entire industry.
Marketing consolidations, acquisitions, and bankruptcies are all signs that the future equity crowdfunding is finally here. But this accelerated growth doesn’t mean that crowdfunding has reached a level of maturation. Not yet.
In fact, crowdfunding has just reached the age of adolescence where mistakes are still made and lessons can still be learned. While the future of the crowdfunding industry looks bright and exciting, it’s key for both investors and business owners to remember that we’ve only just begun to witness the growing pains of an industry still looking to carve out its place in the financing industry.