There are many people who have their hopes pinned to equity crowdfunding—not the least of which are the entrepreneurs hoping to fund their startups.

There is a cottage industry of those that see the bigger picture promised by crowdfunding. The NextGen Crowdfunding Conference held November 19th in Santa Monica was a place for the big thinkers to come together to talk about the possibilities and to hopefully create new realities. Can equity crowdfunding fulfill its promise?

The democratization of capital—the new 98%

Like most things these days, equity crowdfunding is political. You poke around for a few minutes and you’ll find plenty of blogs dedicated to bashing the capital markets and the 2% that make up the accredited investor pool. I have no interest in bashing the 2% or discouraging them from using their capital in established ways to fuel entrepreneurship. Having said that, what could happen if the liquid resources of the other 98%—I’ll call them the ‘new 98%’—could be unleashed on all the promise of our entrepreneurs?

Successful entrepreneurs are the inspiration for the next generation

Aubrey Chernick, someone you probably haven’t been reading about in this season of billionaires in the limelight, is the founder of NextGen Crowdfunding and one of the ‘Top 50 People in Los Angeles’ according to The Los Angeles Business Journal. Like most billionaires will tell you, he got where he is the hard way—he built his business. In 1976 he founded Candle, a software company that served the Fortune 500. The company eventually created a foundation and decades later you’ll see the words philanthropist associated with Chernick as much as entrepreneur. I can tell you that the entrepreneur is very much alive.

Are Wall Street & Silicon Valley the gatekeepers to the American Dream?

I had a chance to speak to Chernick briefly during the NextGen Crowdfunding conference and you could hear his excitement. He talked about a new era where Wall Street and Silicon Valley are no longer gatekeepers of opportunity for entrepreneurs. And in discussing this, Chernick didn’t necessarily knock the established titans of capital, but he clearly felt the current funding system is not enough. And the ‘not enough’ isn’t just about the amount of money available to entrepreneurs. Chernick views the new era of participation on the part of the masses as not simply funding the dreams of entrepreneurs but participating in them. He wants to see investors connect with entrepreneurs and live their dreams with them.

The purpose-driven economy of equity crowdfunding

Many people talk about social enterprise and purpose-driven businesses. Businesses like TOMS Shoes have built a model where people can feel good about spending their money because a portion of the profits is going to help others. Chernick references research done by Jennifer Aaker at the Stanford Graduate School of Business on millenials and their search for meaning. Chernick feels that the next generation of leaders, in particular millenials, want to play a larger role in making a difference, not just with the products they consume. He feels equity crowdfunding enables people to use their capital, not just to consume worthy products or earn dividends—but to fuel the dreams of purpose-driven entrepreneurs who will create jobs and ‘do good’ themselves. It may sound lofty, but as an entrpreneur and the daughter of an immigrant who talked about the American Dream on a daily basis, I found myself getting excited listening to Chernick talk about the new way in which a broader pool of people can fund—and live vicariously through—the American entrepreneur.

For equity crowdfunding to work—everyone needs to know what they’re doing

The purpose of NextGen Crowdfunding and the conference November 19th was to help educate new entrepreneurs and new investors on the way the capital world has worked—and the way it can now work in the era of equity crowdfunding. A few highlights from the speakers at the conference:

  • Keynote speaker Robert Tercek, a digital media pioneer and strategist, talked about how financier and philanthropist Michael Milken, through his innovation in financing vehicles in the 1980s, helped make capital available for thousands of entrepreneurs that created jobs and shareholder value. (You younger crowd may not know about Michael Milken, or that his creativity lead to a prison stint, but he has worked hard to redeem himself.)Tercek likens the legal aspects of Milken’s creativity to the current equity crowdfunding space which is poised to similarly disrupt and open capital markets for startups and emerging businesses. Tercek, in the spirit of the new economy discussion, posited that the future of employment is entrepreneurship, and that the future of financing will be democratized and decentralized.
  • Amanda Hat, Senior Director of Growth Innovation at Indiegogo, spoke about how her company is evaluating a hybrid model of rewards-based and equity crowdfunding and looking at ways to tie the two to each other. This creativity in how the models work is key to ensuring people (investors) can participate in ways of interest to them.
  • Paul Kessler, Principal and Founder of Bristol Capital Advisors and Co-Founder and Partner at StartEngine, believes that Los Angeles will become the nexus for equity crowdfunding due to the city’s inherent creative talent and storytelling ability. As effective storytelling is critical to the success of any equity crowdfunding campaign, Paul believes Los Angeles will become the central hub of equity crowdfunding deal-making and funding.

Although Kessler is claiming LA as the hub for this type of capital network, all parties profess that the capital opportunities themselves will be decentralized. I suppose it’s sort of an open source philosophy…the gate will be in LA but the influencers will be keeping the gate open.

Will Equity Crowdfunding fulfill it’s larger promise?

Now it’s time for the rubber to meet the road. Perhaps one of the early examples of this, appropriately, will be Elio Motors. Several months ago I wrote about Elio Motors and their crowdfunding campaign, managed by CrowdfundX, that uncovered over $30M in ‘expressed interest’ during the ‘Testing The Waters’ phase of the campaign. I got some flack from those that are unhappy that it’s taken Elio nearly a decade to get their offering financed—a precursor to actually launching. The road to capital is long, and littered with corpses and detractors.

Since I have no horse in the Elio race, it will be interesting to see how they fare in the next phase of the campaign. On Friday November 20th, Elio reached another milestone in the campaign. Having SEC approval, at that time the 7-Day window opened for those who expressed interest in the ‘Testing The Waters’ phase to invest. I anxiously await news on how successful the campaign actually is in mobilizing new investors. There is some interesting chatter on the Elio Facebook page with some saying they’ve purchased shares and others doing their research before pulling the trigger.

Will Elio’s investors be a decentralized group? Will investors resoundingly represent the ‘new 98%’ or will this test of equity crowdfunding’s promise show that the investor class has simply found a new vehicle for investment? The entrepreneurs that benefit from equity crowdfunding will likely be delighted regardless of where the capital comes from. But to be truly successful, and live up to the hype, equity crowfunding needs to do more than create a new economy for entrepreneurs—it needs to create a new class of investors participating in the American Dream.

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