This is Part 4 of a 6 part series on why Crowdfunding platforms are the new stock exchanges and why they will need to learn from exchanges like NASDAQ, NYSE and LSE to self-regulate and provide a wide range of ancillary services that help campaigns succeed and at the same time, create revenues for the platforms.
One of the benefits to being listed on NASDAQ is the paperless portal boards of directors have access to that allows them to collaborate around the clock with access to in-depth information. They can manage their calendars and events from that portal. Even more importantly, their secretaries can create online agendas and manage corporate documents remotely.
Unfortunately, if your market cap isn’t large enough or you don’t have enough cash flow, then you can’t become a NASDAQ company. Some companies just don’t qualify and can’t afford it.
“I believe the regulation of alternative trading systems is a long-term solution to fill the gap in the marketplace,” says Vince Molinari, CEO of Gate Global Impact. He sees crowdfunding platforms acting a lot like exchanges, but he says it could be one to three years off before it comes to fruition. One of those areas is in the assistance of filing SEC-required documentation, something his company is leading the way on.
New SEC Regulations & Requirements
Since 1933, the Securities and Exchange Commission (SEC) has required companies selling securities to register with the SEC or file an exemption under Regulation D. Companies seeking crowdfunding more often than not meet the requirements for these exemptions. Because these companies are not used to dealing with the SEC, regulation compliance can be overwhelming. That’s why companies are encouraged to seek assistance in meeting SEC requirements for document filings.
Securex is one of the companies leading the charge in document filings for crowdfunding companies and their attorneys. Alexander Zervakos, Securex CEO, says, “The process is similar to the IPO process, but not as complicated. Still, it’s more involved than many people believed it would be.”
For that reason, companies needing funding can benefit from consulting with companies like Securex for meeting their filing requirements. Investors too.
Earlier this year, the SEC passed amendments to Regulation A of the Securities Act of 1933, revisions that have come to be called Regulation A+. One of the rule changes was raising the amount of capital a company can raise in a 12-month period from $5 million to $50 million.
Along with the amendment to Regulation A, the SEC requires that companies offering equity to file documents with certain public disclosures in them. Again, because companies can get in trouble if these documents are not filed correctly, or on time, many will need assistance. Who better to provide that assistance than the platforms that assist companies in raising funds through equity-based crowdfunding?
With 500-pages of required documentation, companies need to make sure it is done right.
“The SEC has special requirements on the documents they want filed,” Zervakos says. Filing services like his can take a load off companies seeking funding, allowing them to focus on getting the seed or operating capital they need to march on.
Collaboration & Communications Necessities
As equity-based crowdfunding matures, investors and companies seeking funding will need more sophisticated tools to collaborate and communicate, just as investors and companies listed on NASDAQ do. Already, we’re seeing some of these tools being introduced. CircleUp’s conference call technology links investors with CEOs, and super-backer communities like BackerClub serve as a networking club for Kickstarter and Indiegogo backers.
Kick-off parties are beginning to gain popularity in the rewards-based crowdfunding arena and could migrate to equity- and debt-based formats. Crowdfunding platforms could incorporate promotional tools for these events or even the technology and infrastructure to allow them to happen remotely through webcasts and webinars.
One other area of governance and risk management where there is plenty of potential for crowdfunders to partner with a firm is in the area of mobile app development, which could provide connectivity between the investor and the company seeking the funding.
“Companies gain access to liquidity and investors get an opportunity to seek wealth,” Molinari says.
In this environment, everyone wins.