The equity crowdfunding revolution is “unstoppable” and will give anyone the chance to invest in the next Facebook or Google, the founder of the world’s largest platform offering the service says.
OurCrowd founder and CEO Jonathan Medved says the trend towards opening up equity crowdfunding to all potential investors is gaining momentum around the world and will provide huge opportunities, but needs to be approached with caution.
“The crowdfunding movement has got serious legs and big momentum – it’s unstoppable,” Medved tells StartupSmart.
“In general it’s a good thing – it democratises this kind of funding and lets people back the next Facebook or Google.
“Crowdfunding is great. It’s here to stay and it’s going to be a huge business.”
The Israel-based OurCrowd launched at the start of 2013 and has since facilitated 10,000 investors that have chipped in more than $US200 million into 90 companies. The company has a small office in Sydney and has been “more or less doubling investment dollars” each year.
In Australia, equity crowdfunding is currently restricted to sophisticated investors with more than $2.5 million in investable assets and annual earnings of over $250,000, but reforms coming by the end of the year will see these regulations loosened.
Controversy has surrounded various aspects of this upcoming legislation, including plans to force startups to go public and to introduce caps for these “unsophisticated investors”.
Only for the wealthy, for the time being
Once crowdfunding is opened up to everyday Australians, the opportunities are limitless if it’s done safely, Medved says.
“We want Australians to be able to invest in the next Facebook or WhatsApp or in Israel’s dynamic tech scene,” he says.
“How else do you do that as an individual apart from getting on a plane and holding a sign at the airport saying ‘seeking startup?’
“If people do it right then it should be exciting. It’s inevitable, it’s going to happen and there’s no stopping it. But you’ve got to be careful.”
OurCrowd is currently restricted to accredited investors around the world, and Medved says this will remain the startup’s primary focus for the time being.
“We’re choosing to start with democratising among the wealthy first,” he says.
“That may seem harsh but these are people that can afford to take the risk and write big checks.
“Eventually when the smart people are finished with the process then it will trickle down to everyone.
“We’re doing the hard work to make this available to the mass public and at the same time protecting them so we don’t have frauds and we don’t have people investing willy-nilly.
“But when laws are changed to broaden this so everyone can do it, we’ll be there.”
The Goldman Sachs of equity crowdfunding
OurCrowd conducts its own due diligence on the startups that want to list on its platform to ensure everything is above board, and Medved says only about 2% of those they screen make it on to the website.
“Some models allow companies to list themselves on these platforms, take investor money and ride off into the sunset,” he says.
“They rely on the wisdom of the crowd or the regulator to prevent fraud from happening. We don’t believe in that model at all, we think that’s brain-dead.
“It’s simply too risky for the individual investor, they’re probably better off going to a gambling site.”
As opposed to many equity crowdfunding platforms in the UK, US and New Zealand, OurCrowd also acts as a VC fund of sorts, contributing its own cash to the startups that list on the site.
“We put our money where our mouth is so we have skin in the game,” Medved says .
“We’re more like a VC fund than a do-it-yourself crowdfunding business where fraudsters can hide.”
The crowdfunding total is then aggregated into one partnership so a company doesn’t have to deal with hundreds of individual checks and shareholders.
“We want to be the Goldman Sachs of this business, and we’re focused on building an exclusive platform that invests lots of money and does it well,” Medved says.