Investment crowdfunding will solve access to capital problem

At a recent conference, attendees were polled on the greatest obstacles to innovation and business and once again ‘Access to Capital’ was ranked as the top obstacle.  At another conference, an angel investor stated that there was a surplus of available money for investing in new businesses.  It is impossible to reconcile these two statements with classical approaches to raising money.

Crowdfunding is the answer.  Not charity crowdfunding (GoFundMe.org) or rewards crowdfunding (Kickstarter and Indiegogo), but investment crowdfunding.  And, not investment crowdfunding just for wealthy people who meet the securities law definition of ‘accredited investors’ (who comprise only 3 percent of the population), but investment crowdfunding for everyone (the other 97 percent of the population).

The Colorado Division of Securities and the University of Colorado School of Business will conduct a forum on Wednesday, Oct. 25, from 3:30 to 5 p.m. to discuss why investment crowdfunding has yet to realize its potential in Colorado.  The forum will be at the University of Colorado-Denver in the Laube Collaboration Commons, on the 5th Floor at 1475 Lawrence St.  For more information, contact jillian.sarmo@state.co.us.

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Colorado passed the Colorado Crowdfunding Act (C.R.S. 11-51-308.5) in 2015 to enable everyone to invest in Main Street businesses.  This action followed the United States’ passage of the JOBS Act that established multiple forms of investment crowdfunding at the federal level.

However, almost all investment crowdfunding has been focused on selling investments to accredited investors who are seeking 10-times returns on investment within five years and expect the small business to be sold in order to create a cash exit for the investors.  This is a complete mismatch for the 99.9 percent of new and small businesses that cannot attain such an extraordinary profit level and who have no interest in building a business only to sell it off.

Investments by everyone represent a new type of investment decision making that is based upon more than simple “return on investment” criteria.  Investors will consider a wide variety of issues about how they will receive value, their relationship with the business as a customer and the role of the business in its community.

CFEX (Fort Collins) and Invest Local Colorado (Centennial) have recently launched their investment crowdfunding platforms and act as intermediaries under the Colorado Crowdfunding Act. (Disclosure: I am the majority owner of Invest Local Colorado and helped draft the Colorado Crowdfunding Act and associated Rules). Both companies expended great amounts of time and money to comply with the intent of the law to make raising capital affordable to Main Street businesses.

The forum will be an opportunity to:

• Learn about investment crowdfunding as an alternative approach to raising capital.

• Overcome 80 years of laws and regulations that have forced everyone to outsource their investment decisions to invest in Wall Street businesses.

• Suggest ways to make the Colorado Crowdfunding Act to work better.

Karl Dakin is principal with Dakin Capital Services LLC. Reach him at kdakin@dakincapital.com.