Experts Question Approval Of Non-Accredited Investor Crowdfunding
By Paul Esajian on November 6, 2015
The SEC finally gave the green light to non-accredited investors to crowdfund, but not everyone is excited.
Recently, the Securities and Exchange Commission voted to approve Title III of the JOBS Act. This pivotal part of the Jumpstart Our Business Startups Act was meant to really level the playing field so that small businesses could get going with fresh capital, and individual investors could benefit from investing in great opportunities, which had previously been limited to the rich. So why are crowdfunding portals, entrepreneurs, and regular individuals feeling like they got a lot more trick than treat this year?
Too Little, Too Late, for Non-Accredited Investors
The founder of one leading crowdfunding portal advised by Shark Tank investor Barbara Corcoran heralds the Title III vote as a potential flop. It’s a frustration many others in the crowdfunding world have been echoing for some time.
Over a hundred crowdfunding portals have been set up over the last few years. Massive sums and years of work by large teams have been invested. All have high hopes of being a part of new job creation, funding business startups, and providing highly profitable investment opportunities for regular individuals. All have been waiting for the green light for non-accredited investors to join the wealthy in using these platforms to invest in real estate and hot tech startups.
Unfortunately, there is really nothing for non-accredited investors to invest in via crowdfunding portals. There might not be any time in the near future either, even for those willing to take the risk.
The problem is that, as Tanya Prive points out, there are such intense regulatory requirements on crowdfunding portals, it is going to be difficult – if not unprofitable – to help non-accredited investors, and smaller fundraising campaigns. Startups and fundraisers are facing similar challenges on their end too. Title III caps the fundraising limit from non-accredited investors at $1 million. That’s about half of the average seed for startups today. Then there is the cost of organizing, legal help, accounting, and marketing, which can really run from thousands well into six figures.
What the market appears to be left with, for now, is a new field that benefits the already wealthy, and even big banks. This isn’t necessarily a bad thing. This still means capital is available for sizable startups and real estate projects for accredited investors and institutional investors. This can all help the wheels keep turning.
The down side may be that it decreases the need for those with big lobbying bucks and power to press for easier lending for all, including the regular first time home buyer.
Alternative Fundraising and Investment Options
For non-accredited investors interested in real estate projects and real estate investors seeking to raise money, there are still other options:
- Peer to peer lending platforms
- Donation crowdfunding
- Real estate investor friendly mortgage and business lenders
- Private lending
- Real estate partnerships
Real Estate Partnerships & Syndication
Investors can still privately partner together to do larger deals and achieve leverage without needing crowdfunding portals or conventional lenders. This can be among family, friends, coworkers, and other personal contacts. It can even incorporate other local investors. However, investors must be careful, and reach out with extreme care not to publicly advertise or make guarantees. You do not want to cross the line and have the SEC breathing down your neck for offering securities or operating without a license.
Summary
Real estate and startup crowdfunding may prove to be a flop for non-accredited investors, but it’s not as if anything has really been taken away. The crowdfunding platforms that invested their time and resources in preparing for Title III are those that are really going to be frustrated and let down. While this plays out, there are plenty of other real estate financing options available, especially for investors.