As the summer intern for Crowdfundsuite, I had the opportunity to attend the Washington Equity Crowdfunding Summit on August 7th to join the conversation regarding House Bill 2023 (Washington Jobs Act of 2014) to open equity crowdfunding to ordinary non-accredited investors. The state law was passed earlier this year making it easier for startups and small businesses to sell shares to raise money.
The event brought together bureaucrats and entrepreneurs to discuss the development of the rules related to Bill 2023, which effectively started an open dialogue between the two groups. Bill 2023 will allow Washington state businesses to raise up to $1 million during any 12-month period from Washington state residents in a crowdfunding campaign, with the funds being raised from non-accredited investors, as well as accredited investors. Undoubtedly, this will democratize the access of capital for startups and small businesses, which often have a difficult time raising money solely through banks and accredited investors
However, by allowing non-accredited investors to participate in equity crowdfunding, policy makers will have to create a balance between their financial security and their accessibility to invest. Consequently, here are 3 challenges that were brought up at the event that policy makers are going to have to overcome before equity crowdfunding can be efficiently utilized by entrepreneurs and investors.
1. All or Nothing Model
In order to raise money through equity crowdfunding in Washington, the issuer must set a dollar amount that must be reached. If this goal is not reached, the issuer must return all the money that would lead to a loss of time and money for the issuer. However, one of the benefits of the “All or Nothing” policy is that it provides market feedback for the issuer. With that being said, if the issuer raises $990,000 of their one million dollar goal by the last day of the campaign, the policy would still force the issuer to forgo the investment funds raised.
Valuation estimation is constantly pivoting, which means that the required startup capital is always fluctuating. Moreover, the valuation must be set at a point where crowd investors will get appropriate returns and the issuers have enough capital to succeed.
3. Online Advertising
Crowdfunding campaigns tend to market heavily through crowdfunding platforms and social media in order to reach millions of people all over the world. However, the state government states that you can only advertise equity crowdfunding to Washington state residents, which is a fundamental roadblock for those who want to use the Internet for advertising.
Overall, the Washington Equity Crowdfunding Summit was an incredibly rewarding experience. The intimacy of the event allowed bureaucrats and entrepreneurs to collaborate together to formulate a roadmap for successful equity crowdfunding. Lastly, a fundamental lesson that I learned was that despite the promising future of equity crowdfunding, it is not the right alternative funding for every business.
Often times, peer-to-peer crowdlending or rewards crowdfunding would be a more appropriate funding choice for a business looking to raise capital. Fortunately, Crowdfundsuite offers one-stop access to leading platforms and expert services to navigate the complexity of Alternative Funding from Rewards and Equity Crowdfunding to Real Estate Crowdfunding and Peer to Business Lending.
What do you think about the bill? Give feedback here: https://app.leg.wa.gov/pbc/bill/2023