By Steven Morris
Equity crowdfunding—and more specifically Regulation A+ deals—has understandably received significant attention over the past few years. Investors and their financial advisors now have access to early stage of companies and initial public offerings, which was previously available only to the wealthy, or those with well-connected advisors who could have shares allocated their way.
Recently, there have been several prominent offerings from revenue-producing companies, and that frequency is expected to grow. Advisors counsel their clients to review investment opportunities suitable for them which they consider likely to succeed. However, many investors consider equity crowdfunding deals for more than just upside: They are investing with their hearts.
Financial advisors, of course, learn to invest based on underlying fundamentals, market research and general awareness when reviewing asset classes and companies. By contrast, most of their clients—wealthy or struggling to make ends meet—make emotional decisions. These individuals have always considered donating to charities and nonprofits, hopeful that their contributions will impact social change, support research against a disease or go to some other positive cause.
A key trend in equity crowdfunding is the successful alignment of these converging considerations, allowing smart investors and their advisors to consider investment opportunities in both startups and established companies that could both potentially offer returns on their investment and make the world a better place. For example, Rayton Solar—a company seeking to bridge the gap between particle accelerator technology and solar energy production—has raised millions of dollars since launching its offering. What has been key to their success? One, it helps having Bill Nye—one of the nation’s most prominent and recognized scientists—as the spokesperson for the company and its technology. Two, the company’s mission statement resonates with those who are renewable/sustainability-minded and want to support a company and technology that reduces the world’s carbon footprint.
This perfectly represents what draws investors to equity crowdfunding. Rayton Solar exists within the established and widely recognized high-growth solar industry, they have a credible spokesperson, and they espouse positivity in their mission statement, along with their desire to make the world a better place.
More entrepreneurs and investors have identified this same trend. Offerings spanning healthcare, sustainability, affordable housing, and more have become more prominent, successfully raising hundreds of thousands and millions of dollars.
So how should investors and their financial advisors review equity crowdfunding deals? As always, performing due diligence and reading all filings and disclosures is paramount. Two, understanding the markets for these new technologies is critical to determining commercial viability and what their customer base may look like down the road. Three, keep in mind that some of these companies will look to you not only as an investor but also as an ambassador to the brand and as a partner. They will ask you to share their story, tell your friends and family and further spread their influence by making the case for their company not only as an investment, but as a game changer.
Another key approach for investors is to evaluate not only the company, but its leadership. Typically, the people behind the company, be it an advisory board or the entrepreneurs themselves, are a strong representation for not only how the company will develop, but how transparent they will be. Unfortunately, like many other hot sectors, equity crowdfunding does attract a genre of people who are looking to make fast money. These individuals must be avoided.
Further, any investment consideration, especially one that an investor feels emotional about, has varying degrees of risk and upside. Not only should the investor be aligned with the company and its ideals, it should seek an equity crowdfunding offering that stands out in terms of market opportunity. After all, it’s ultimately the companies that satisfy an unmet demand that are successful in gaining traction in the market.
Impacting change and making lifesaving investments in startups with the potential for significant gains is a concept new to most investors since the JOBS Act. The number of equity crowdfunding deals hitting the street clearly demonstrates that these trends aren’t going anywhere. Interested clients and advisors should start researching the ins and outs of these investments, choosing the companies and markets to get involved in and make careful investment decisions with the head and the heart.
Steven Morris is the Founding Partner and CEO of BIOLIFE4D, a biotech pioneer leveraging advances in tissue engineering to 3D print human organs viable for transplant.
