Could equity based crowdfunding pay for your retirement (and save the world)?

June 27th, 2012 by

So, you have a bit of spare cash you want to invest. You’re not Warren Buffet (if you are, please reply to my emails), but you’re interested in where this money goes and of course the returns that come from it. If all goes well, one day it may fund part of your retirement. That or buy an attack drone to terrorize your neighbors with.

The problem, for small investors, is finding somewhere decent to put the money.

Retail deposits are an obvious start. But after tax, inflation and fees you might as well just hide it under your mattress (uncomfortable as it might be, if your bank is Greek or Spanish it will probably still make for a better night’s sleep).

Investing directly in the stock market is unlikely to yield much greater returns – assuming you don’t lose it altogether. Managed investment funds promise the world, but seem to specialize more in hidden fees than delivering returns.

Crowdfunding a new era

As you will have guessed by now, the alternative we are coming to is crowdfunding.
Crowdfunding is a big deal: globally the 450 or so crowdfunding platforms raised $1.5bn last year. This figure that is expected to double in 2012.

So far most of this funding has been in return for rewards (like merchandise) or simply donations. Crowdfunding platforms, for the most part, have been unable to offer equity in companies by securities laws, so opportunity for ‘real’ investment has been limited.

That is, until now. Early last month, Obama signed the JOBS Act, which clears the way to offer the crowd equity in companies. The UK regulator looks set to relax laws in a similar way later this year.

Investments for the people, by the people

Already, platforms like Fundable have sprung up to take advantage of the law change, using the Kickstarter model, but offering equity as well as rewards (or at least it will, when it gets SEC approval and the SEC sets the regulatory rules for the space). This could make a huge difference for startups looking for cash (as well as exposure and a support base).

But the potential for more broadly revolutionizing the way we invest is huge. There will be teething problems and no doubt some disappointments (and money lost), but if the experience is a positive one, these law changes may seriously disrupt the current investment industry, for the benefit of small investors and companies alike.

Next week we’re talking with another new platform, the UK based Trillion Fund. Trillion Fund has the modest goal of raising a trillion dollars in order to solve the world’s energy needs. They plan to do it by making investing something profitable and engaging for normal people. I like their style. Come back next week to hear all about it.