Crowdfund Investing and the Importance of Trust
Crowdfunding is by no means a new phenomenon; it has roots in charitable and civic fundraising, but it really took shape on the internet with the creation of Kickstarter in 2009. And in recent years, the crowdfunding world has begun to really take off, with multi-million dollar campaigns on Kickstarter and Indiegogo no longer raising eyebrows. Soon, with the advent of equity crowdfunding (pending SEC action), the crowdfunding world will begin to enter a whole new chapter of life and expand into all new markets and opportunities.
This boon to finance — the size of which is difficult to predict — will greatly impact the private market and help companies otherwise locked out of the investment world raise the funds needed to become viable business opportunities. We, as do many others, believe equity crowdfunding to be long overdue. A central struggle of this expansion, however, is inevitably going to be the essential need for trust and confidence.
Many opponents of the JOBS Act have argued, sometimes aggressively, that the legislation has opened the floodgates to fraud and abuse — but what is often overlooked is the fact that crowdfunding advocates share very similar concerns. We are not blind to the realities of the world, and are very aware that there will always be a number of bad actors looking to take advantage of the misinformed.
It is for these very concerns that the industry has become consumed with a need for self-regulation, with many groups arising to monitor and approve portals and projects, such as Crowdsourcing.org (CAPS), CFIRA, and CfPA (in addition to the efforts that FINRA will inevitably provide once the crowdfunding provision becomes a reality). This is such an important facet of the coming industry, in fact, that crowdfunding portals have made securing investor confidence a pivotal aspect to their business endeavor and worth substantial capital investment. It makes good sense: without the investor, there is no business.
Joinvestor is attempting to maintain investor trust in a number of important ways. First and foremost, our process itself ensures that participating companies are well known and understood by our review staff and investor pool. The incubator model gives us direct and continuous access to the company founders and the company details, and allows us to properly guide and grade the potential opportunity and provide risk ratings to our investors. Additionally, we subject all campaigns to the rigors of the CrowdCheck due diligence process, providing an additional layer of security prior to the first dollars being raised. And finally — and in some ways most importantly — all campaigns are personally and individually managed. Successful rounds are mediated directly by members of our staff. There is no automatic transfer of money and equity, even if the technology to do so would be trivial and cost-effective to build; human eyes are always watching the process to ensure that everything is on the level and that everyone involved is getting exactly what they agreed to.
Going forward, Joinvestor (along with the bulk of this new industry) is strongly advocating for investor protection, and encourage participants to use only those portals that are willing to subject themselves to third-party review and are willing to invest in methods for ensuring company fidelity and robustness. While no amount of effort can remove all risk, of course, and investment in start-up companies is inherently more risky than other form of investment, we (and many others) pride ourselves in doing the very best that we can manage in service of all participants. Crowdfunding will surely change the way companies fundraise and interact with their investors going forward, and it is up to the community to ensure that only the very best cream rises to the top.
Bryan Healey, founder and CEO of Joinvestor, studied Computer Science at Northeastern University before becoming a software engineer and technical leader in the Boston Metro start-up community. Mr. Healey has over 10 years of experience helping young companies build secure, highly scalable, load-tolerant services that are extensible, easy to maintain and platform agnostic, as well as growing and mentoring quickly expanding technical teams.”