It is inevitable and it has to happen. In a 2013 white paper Grant Thornton put the traditional stock exchanges in perspective:
- The number of listed companies in the U.S. declined 43.5% since the peak in 1997
- Small-company IPOs, as a percentage of all U.S. IPOs, dropped from 80% in 1997 to 20%
Small and medium size companies are not flocking to the traditional exchanges, today, there are16,000 companies listed on the NYSE, NSADQ, OTQX, OTCQB and OTCBB and 5.7 million small and medium sized companies (SMEs) with less than 500 employees in the U.S. alone. Is it me or does equity crowdfunding seem to loom as the next great financial markets opportunity?
My sermon of late has been about equity crowdfunding platforms in reality being stock exchanges – institutions where investors can acquire equity in companies. So with sufficient platforms in place all that is needed is a proper regulatory environment and the rest will be easy. The ancillary legal and financial services, and infrastructure to promote investment and create liquidity all which already exist and are anxious to jump in and benefit from the new alternative financial market opportunities. It’s the perfect storm.
Well, perfect storm if indeed the market is there. Is there enough demand for capital, enough innovation and ingenuity in our SME ecosystem that a robust need for capital exists? Is there any doubt? I don’t think I have ever run across an SME that did not have an expansion plan, product development road map or marketing strategy in a drawer waiting for capital. In a sense, it is the American way – every entrepreneur has a plan in his or her back pocket and all takes is cash to unleash innovation and development. The kind of cash that equity crowdfunding can facilitate.
Lastly, assuming my conclusions are correct, could it be that equity crowdfunding goes one step further increasing the number of Americans investing in companies? In an April 9 article CNBC pointed out that more than half (52%) of Americans are currently not investing in stock markets – either directly, through mutual funds, IRAs or 401 (k) retirement plans. A Bankrate.com survey showed 21% “don’t trust stock brokers or financial advisors”. You won’t need a brokerage account, broker or advisor to invest through a crowdfunding platform so just maybe this huge number of Americans now on the investment sidelines will put down some cash for stocks in the company down the street – just maybe.