What will the securities crowdfunding industry look like in 5 years? 10 years?
Within 5 years, JOBS Act related businesses will have fundamentally changed the way people invest and massively disrupted Wall Street as we know it today.
In the early 90’s, early adopters said that this new thing called the “internet” would fundamentally change the way the world communicates. Sure, people would still make phone calls and even send the occasional letter, greeting card or invoice via stamped postal service, and they might even buy a newspaper or magazine every now and then, so those old line companies would still be around, but the majority of communication would become electronic.
Likewise, people will still buy stocks on the NYSE and NASDAQ, and they will still invest in municipal bonds, but the majority of investment activity will be in private markets via what today are considered “alternative” platforms – which in the near future will become “primary”.
Here are a couple of metrics:
- There are almost 50% fewer publicly traded company’s then there were just 15 years ago. That’s half as few choices for a population that continues to increase, and practically no access to capital for businesses to grow and create jobs.
- The average return of a typical investor in a blended portfolio has been just 2.5% over 10 years, and 1.9% over 30 years.
Now imagine a world where, with a few clicks, you can research and invest in…
- Real estate with a clearly defined exit strategy where you can earn from 7% to 30% on your money; or,
- Put your money to work with a “social good” objective where the developer is revitalizing inner-city communities, and still earn solid returns; or,
- Invest in a hospice in the Midwest for a projected 15% return; or,
- Earn a better-than-stock-market return while helping your church get solar panels; or,
- Invest in a next generation car company and take a swing for the fences; or,
- Invest in high-tech, consumer goods, transportation, oil & gas, manufacturing, medical device, hospitality, franchise, or just about any other industry you are interested in.
That world, though embryonic, already exists thanks to people leveraging the JOBS Act to create opportunities online.
YESTERDAY: in 1995…
- Regulators were considering countless laws to regulate the internet. Naysayers wanted to “protect the public” by restricting both content and access (they wished this whole thing would just go away).
- Routing protocols and peering were known only to a small handful of individuals.
- The backbone was pushing the limits of T1 (1.544Mbs) and OC3 (45Mbs) upgrades were enormously expensive.
- 56Kbps was considered lightning fast access and only the largest businesses could afford a T1.
- Pundits were predicting that by 1996 this new industry would “spectacularly and catastrophically collapse”.
TODAY: in 2015…
- Regulators are slow to issue rules which enable tech-driven capital formation. Naysayers want to “protect the public” by restricting who can invest and how much (they wish this whole thing would just go away).
- Early adopters are still writing software and finding ways to interconnect.
- Technology and back-office for funding platforms is evolving, and only offered by a couple of firms.
- Issuers, broker-dealers, and others don’t yet understand how they can leverage new rules and new technology.
TOMORROW: in 2020…
- Investing online in small to medium sized businesses is how almost everyone in this country invests their money. The vast majority of people would no more have a stock market account than they’d use a pay phone to make a call.
Why will this happen?
Defined Returns & Understandable Exit Strategies – you never know what the stock market is going to do, but the securities you buy online will, by and large, have clearly stated projected returns and articulated exit strategies.
Diversity of Offerings – whereas the stock market has a few thousand businesses, the online world will have a hundred times that, in whichever industry you like.
Level Playing Field – online capital formation removes all barriers, so no longer will geography, gender, or race prevent anyone from raising capital (in fact, it might help).
Global – as AML systems mature, the US online private markets will dominate global investment.
Aggregation will be the Norm – an offering on one platform will easily become listed on multiple platforms as API’s allow the next generation of eBay and Amazon-like investment platforms to syndicate offerings.
Liquidity will be Easy – thanks to the next generation of secondary market platforms.
Research – becomes easy and interesting as firms like Zack’s and Crowdnetic pull historical and current data on issuers and offerings from platforms.
Brokers & RIA’s Join In – as they can now provide clients with new portfolio options (and targeted returns) while earning more money selling these securities than they can slogging mutual funds or stocks.
Micro Funds (<$50M) – are able to earn significant returns for their pools of investors while profitably managing relatively small amounts of capital as they invest in private securities in targeted industries.
Tech-Based Ecosystem – will ensure regulatory compliance and safeguard against fraud in a frictionless manner.
This industry is going to disrupt the status quo and change the world.