Academic journal article ABA Banking Journal

Please Crowd Me: How Crowdfunding Will Meld into Community Banking

Academic journal article ABA Banking Journal

Please Crowd Me: How Crowdfunding Will Meld into Community Banking

Article excerpt

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GIVEN THE HYSTERIA OVER Alibaba recently, you may get the impression that in this market everyone is an investor.

Crowdfunding trends would only reinforce that notion.

Crowdfunding is the concept that individuals, companies, and investment organizations (funds, clubs, etc.) can invest or donate money in exchange for products, experiences, royalty streams, equity, debt, or a combination of all of the above. The concept has been popular for the last five years, and is now on the verge of opening up new areas where previously only high net worth or institutional investors have played.

For example, let's say you wanted to invest in a 30-unit, multi-family apartment building. Unless you had at least $75,000, the due diligence, legal work, and fees would make it hard to achieve a suitable return. However, standardize everything and make the aggregation of funding efficient, and individuals can now invest as little as $1,000. The same can occur for start-up companies, local restaurants, museums, infrastructure projects, or just about anything else.

More than $2.2 billion was invested last year on more than 300 platforms in the United States. Names like Kickstarter, Indiegogo, Lending Club, and Prosper have become common names. Within the crowdfunding industry, debt financing, particularly peer-to-peer lending, comprises the most active and largest segment by dollar volume.

Crowdfunding's continued evolution arises largely because of the Jumpstart Our Business Startups Act (JOBS Act), which was signed into law during the spring of 2012. Since then, a battle between businesses, investors, legislators, and regulators has largely made Title III of the JOBS Act--the part that was supposed to open crowdfunding to the non-accredited masses--unworkable. …

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