This is Part 6 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.
Thanks to the JOBS Act of 2012, investing in startups is changing in big ways. Two years ago today, Title II of the Jobs Act went into effect, allowing early stage startups the legal authorization they needed to publicly solicit funding, even though they can only accept equity trades from accredited investors. It was a huge rule change.
As a result of this change, investors interested in funding early stage startups needed a way to keep track of information that helps them become better investors. That’s where companies like Crowdnetic and DealIndex come in.
“There’s not a lot of secondary funding going on with crowdfunding platforms,” said Janet Rosenblum, director of research and special counsel at Crowdnetic, “but we provide data and the basic infrastructure investors need covering 18 different platforms.” These platforms include Wefunder, AngelList, MicroVentures, OneVest, Patch of Land, Seed Equity, and SeedInvest, just to name a few.
Why Investors Need Market Data
Successful investors thrive on information. They need to know when markets open and close. They need access to real-time information about companies they want to invest in so that they can assess stock valuations and investment threats and opportunities. Investors on the traditional stock exchanges have access to that kind of information, usually in real-time.
DealIndex Co-founder and CEO Neha Manaktala said crowdfunding still needs to mature, but crowdfunders are democratizing the finance industry.
“Market data and research is where traditional finance and new finance are coming together,” she said. “There needs to be more diligence, better processes in place, and more liquidity in private markets.”
Nevertheless, she does see a movement toward more collaboration between crowdfunding platforms and platforms like DealIndex, which provides standardized analytics and insight reports that allow investors to track opportunities across multiple business sectors and geographic locations, including valuation analyses.
While these services are not as deep and rich as those provided by the stock exchanges, they are similar.
NASDAQ provides investors with a Global Index Watch. Investors can read reports on corporate actions, daily summaries of price and dividend market values, as well as breakdowns on industry sectors and historical analyses. The stock exchange also provides last sale data, market data RSS feeds, and tick-by-tick transaction details. Third-party services like DealIndex and Crowdnetic are providing similar services for the crowdfunding and alternative finance sectors.
“Instead of investors going to each individual platform and registering to use the site, they can come to CrowdWatch (Crowdnetic’s subscription-based market data aggregator) and it’s all in one place,” Rosenblum said. “Clearly, it’s only public data.”
Security and Exchange Commission rules prevent the distribution of non-public information, but the aggregation of public data is still important.
Market Data Available for Crowdfunders
So what kind of information are crowdfunders looking for?
“We have information on new offers going out,” Rosenblum said. “We have information on the target amount, what type of security an investment is, updates on how much money a startup has acquired, and a lot more.”
Crowdnetic publishes information on eight different sectors and 200 industries. They list the city and state of the company seeking funding, a company description, market valuation, and other information stock exchange investors have been privy to for a long time. Much of the information is free and can be gained at MarketWatch. A more beefed up version of Crowdnetic’s market data is available by subscription.
DealIndex does something similar, though Manaktala said the information investors need depends on the offering.
The more established a company is,” she said, “the more data investors are going to ask for. I suspect that as more sophisticated investors get involved they will ask for more and more data.”
Manaktala said companies needing funding also have a need for market data. They need to analyze the various platforms to see which one is most appropriate for their funding needs. Third-party services like hers can provide that information too.