September 25, 2013
Interviewed by: David Snow
Video Clip
Login to view full video

Riding the Crowdfunding Wave

What you’ll learn:

  • How new advertising rules will address challenges faced by small to medium-sized enterprises
  • Why social media is a “game changer” for fundraising
  • Why real estate is the asset class best-suited to new fundraising approaches

What you’ll learn:

  • How new advertising rules will address challenges faced by small to medium-sized enterprises
  • Why social media is a “game changer” for fundraising
  • Why real estate is the asset class best-suited to new fundraising approaches

Riding the Crowdfunding Wave

With Rich Salute of CohnReznick

For private equity, how important is the SEC’s recent loosening of the rules around “general solicitation” of private funds?

Rich Salute, CohnReznick: Well, it’s from a layperson’s perspective, I’m not an attorney. Based on my observations and discussion with attorneys, it’s huge. It’s the reversal of 80 years of legislation and laws. It creates an incredible opportunity for businesses, especially the smaller ones to go to the market place and present a credential and a value proposition in a clear and precise way that allows for a much broader group of people so that they’ll be more choice for the investor community.

The interesting thing about lifting the ban is that the ban will be lifted as of September 23rd, but then there are other rules and regulations that the commission is going to seek to install in connection with investor protection because they’re very much concerned about the dissemination of these types of opportunities without having the appropriate filter. It is huge, and one of the things that we can’t do right now unfortunately, is really determine what the behavior of the marketplace is going to be.

Some of us think there will be billboards and radio ads and TV ads for companies soliciting the sale of their capital or the issuance of their debt, but we don’t know that. We just don’t know, and it’s impossible to predict because there are so many different facets within the issuer community that will in fact, in my view, take advantage of this. The hedge funds and the private equity shops and the mutual funds and private companies. Even public companies can be impacted by this. It has such a broad impact and it’s a substantial paradigm shift, if you will, in terms of how equities and securities have been sold over the last 80 years. Huge impact yet to be determined and clearly it’s in the benefit, from my perspective, for small to medium enterprises. They may be able to get their voice heard, which is today, very difficult for them.

What are some of the specific challenges that small to medium-sized firms have that general solicitation may address?

Salute: Access to capital. Typically, a small business is financed by its employees, its vendors, and if they’re lucky, they’ll have a financial institution supporting them. Generally, in today’s marketplace, it’s principally through an asset base arrangement. Going to the marketplace and providing a story about a business is a great opportunity and when you can do it using technology, you’re going to be able to attract a much broader base of potential investors. That will lead to opportunity for these companies in many, many different circumstances. When you look at a business like that, they’re value proposition is driven principally by reasonably strong strategic plan and human capital. One of the things that will be provided by this ability to communicate now to the general investing public is that you’re going to attract potential talent. People who like your idea who could add value to the concept will know about you now. Today, it’s very difficult to do that and it’s not just in the United States, it’s a global approach. It’s extraordinary what could happen from just being able to say, “Hey, I’m out here looking for capital, here’s my value proposition and here’s what we’re trying to do in the marketplace.” Today, I understand that these startups, for example, get valued, in many circumstances, by the number of qualified engineers, or scientists they have within their group. The acquisition of human capital could be just as important as financial capital and this is a way of being able to tell your story to get access to that.

What role does social media play in tapping into those networks to raise capital?

Salute: Social media is a game changer in my view. I think that as we as a society become more and more comfortable with mobility, information from a mobile perspective, the social media aspect of what, the impact of social media on capital on the formation of capital, again, both financial and human, is profound. Again, it’s in my perspective, right now it’s still in its very, very early stages.

I analogized it one time. Right now, social media is like the early PC that came out. Nobody knew what to do with it but they knew it was cool. When social media really starts creating value, and LinkedIn is a good example of that, and I don’t mean to advertise LinkedIn, but when LinkedIn started really creating opportunities and value propositions for individuals and companies, I think that’s where social media is heading.

Are there asset classes you find particularly well suited to this form of capital raising? 

Salute: Real estate is probably the simplest asset class to fund because it is the most recognizable. Most people could relate to owning a building or owning a home, they all understand what mortgages are, they know what an interest rate is, they know that they have to make rent payments or that they have to pay real estate taxes. So real estate is clearly the simplest asset form to invest in and in fact, there are a number of companies who are positioned to sell interest in real estate from a brokerage perspective. They’ll find the real estate and they’ll create portals for investors to come in to look at the real estate and acquire interest in it. I think if I had to bet something about which asset class is going be first in the market to be successful and through crowd funding, I think it’s going to be real estate.

Register now to watch this video and access all content.

It's FREE!

  • CHOOSE YOUR NEWSLETTERS:
  • I agree to the Privcap terms of use and privacy policy
  • Already a subscriber? Sign In

  • This field is for validation purposes and should be left unchanged.