Being in the media business I have a lot of connections in media and journalism and I am really hoping they read this because what a growing number of people understand as a sea change in our financial markets that is poised to have a huge impact with small and medium size businesses, employment and our economy is just not being covered. In fact with the exception of specialized media the coverage is very sporadic if any at all which leads me to believe that there is a knowledge gap. A knowledge, understanding and perspective gap.
Let’s start at the beginning. In the United States the JOBS Act launches crowdfunding in 2012 which means the phenomenon is arguably three years old. In reality it goes back much further than that but for arguments sake let’s use 2012 as a “starting point”. So that is one answer, it is a relatively new event. Another may be size, in 2012 $2.7 billion was invested in crowdfunding and in 2015 it is estimated to reach between $60 – 90 billion depending on who you ask. So there is another answer, even $100 billion is a drop in the bucket compared to a single day’s trading volume at NYSE. So where is the sea change that merits media interest and coverage?
Well, the $2.7 billion invested in crowdfunding in 2012 was spread out in over 1 million campaigns. There are no guesstimates as to how many campaigns will be executed in 2015 but if history is any indication of the future then the number will exceed one million worldwide. The extraordinary impact is in the sheer number of people that are touched by the new financial market, the number of small and medium size businesses (SMEs) and employees whose lives are affected by crowdfunding. SMEs are the employment engine of our economy and globally. In the United States there are 5.7 million small and medium size companies with less than 500 employees and only 16,000 companies listed on the major stock exchanges. Am I the only one that can see how democratizing access to capital for 5.7 million SMEs can add 20 million American jobs?
To access the NASDQ in order to raise capital at the lowest level, companies seeking capital funding will need to show that they’ve earned a pre-tax total of $11 million in revenue from the previous three years, and at least $2.2 million of revenue from the most recent two years. The minimum cash flow requirement is $27.5 million from the previous three years. For market cap, smaller companies must show a capitalization of $550 million from the prior 12 months. There are no SMEs with a half billion dollar market capitalization! So the traditional capital are not the answer for SMEs.
And I keep stressing the global impact of crowdfunding, Brazil has 6 million SMEs. India, France and Germany are also implementing rules for crowdfunding and the United Kingdom lead the globe with the most advanced equity crowdfunding programs to date.
So this is both a call for help and an opportunity. An opportunity for journalists to dig in and learn, to become knowledgeable and comfortable with the new financial market that can touch more lives than our traditional markets could ever dream of touching. An opportunity to find the financial, business and human stories created by crowdfunding. An opportunity to weigh in and make a difference as the phenomenon grows – an opportunity to point out the good, the bad and the ugly and help the industry mature, regulate and adopt best practices that ensure expansion and development.