View Full Version : Prospects of A Crowdfunding Second Market

08-05-2013, 07:13 PM
Prospects of A Crowdfunding Second MarketBy: Brian Krassenstein

Here's an interesting concept which I think we will hear more about once the SEC puts rules into place for equity crowdfunding. The concept of an exchange for equity in past crowdfunding projects. Just like stocks on the NASDAQ go public via a pricey Initial Public Offering (IPO), equity crowdfunding allows smaller companies to basically go public themselves, by selling small stakes of themselves to whoever finds their idea or product investment worthy. Although we don't know exactly how, or even if the SEC will regulate the selling of equity in second markets, it's pretty obvious that soon after equity funding goes live in the US the concept will materialize into a business idea.

Equity Crowdfunding Second Market / Exchange Could Become Huge

If you think about it, a second market for equity crowdunding shares could operate no differently than that of the NASDAQ. Once a company goes public via a crowdfunding project, there will be a substantial number of shares out there in the hands of those who invested. Rather than waiting to cash in on those shares only if the company would be acquired, or actually go public a second time on a stock exchange; what if there was already an exchange, or second market set up, governed by the SEC, and regulated in a similar but more lenient fashion? After years of projects reaching their equity funding goals, this second market could literally have thousands of companies which have shares listed on it in an open market format.

The Crowdfunding Tentacles Continue to Expand

If something like a second market does emerge, we could see thousands of jobs created just to deal with the trading and listing of crowdfunding equity positions. This could then spill over into brokers, dealers, and advisers, creating even more jobs on top of those already brought about from the fact that these companies got started in the first place, and on top of all the jobs created to serve the needs of the various crowdfunding platforms. In my opinion the JOBS Act could very well be one of the most positive economic changes we have seen since the FDR administration.

08-14-2013, 12:46 PM
If we don't eventually see a secondary market, equity crowdfunding can not succeed. People would basically
be in investments that they could not exit. With no exit strategy, there would be no investment.

There are a few companies already working on creating secondary markets, Cal-X comes to mind as an early

Other companies are exploring crowdfunded investments with a built-in exit strategy, an example would be
http://www.IPOVillage.com . Working on crowdfunding public offerings in a hybrid IPO / DPO model.



08-14-2013, 05:30 PM
I think it will be hard to create a secondary market for equity crowdfunding since individual will be owning small percentage of company.

In addition the investor owns the company through a shareholder agreement with the equity platform which then does one shareholder agreement with the project owner to own the company. They will have to invent a creative way to transfer ownership without altering the shareholder agreement.

On top of that the question of evaluation of the company value will come in play The problem with that it will require start up companies to get their financial statements verified and acknowledge from one of the top four accounting firm which most of start up company cant afford.

It will be interesting to keep tabs on this subject and how it evolves.

08-15-2013, 08:24 PM
Yeah I feel that a secondary market could really make things take off for equity crowdfunding in that investor know they will be able to liquidate their investment assets within hours or days. Having said this there is a ton a regulatory work that would need to be done to create such a framework, and any such second market is likely a few years away.