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In the world of crowdsourcing there is a continuum, Ched Wagner, Manager of Nvsted explains.
On one side are the GoFundMe types, giving-based platforms that allow for public or private fundraising for medical expenses, charity causes and the like. Somewhere in the middle lies the Kickstarters of the world, a tit-for-tat rewards-based scheme in which crowds can support a new product or idea in exchange for early or VIP access. Finally, and this is where Nvsted lies, there is Regulation Crowdfunding investing– platforms designed to allow individual investments in companies by unaccredited investors.
Nvsted is one of only 40 or so licensed Regulation Crowdfunding platforms that have filed with the FINRA, the Financial Industry Regulatory Association. The program is part of Title 3 of the Obama Administration’s JOBS act and is only two years old. It allows for different levels of regulated crowdsourced investment up to $1 million dollars in a 12-month period.
Since launching April of this year, Wagner says that based on the overwhelming response to its first offering, WellBeing Brewery Company, the non-alcoholic beer maker that launched with Nvsted earlier this year, Nvsted has proven the platform’s hyper-local focus is a viable model to create a regional economic impact.
Nvsted and Wellbeing Brewery Company prove crowdsourcing locally can work
The company raised its minimum of $125,000 in the first 60 days and within 77 Days, they had raised their maximum of $200,000. These numbers represent hundreds of unaccredited investors, people who previously could not receive equity in return for their investment, investing in amounts ranging from $500 to $36,000.
“St. Louis is really supportive of it’s startups community,” says Wagner, “ ⅔ of all the investments came from the region.”
“The platform isn’t just limited to consumer-facing companies either,” says Wagner, who sees potential in breakout opportunities in the B2B space as well.
Regulation Crowdsourcing has zero reported fraud but isn’t without risks
In the early days, there were some detractors who worried about fraud. Wagner and Jeff Frankel, Chief Compliance Officer with Nvsted point out that the transparency the platform and the SEC provides mitigates this.
“Since the launch of these crowdsourcing platforms, there has been zero fraud. Before when an un-accredited investor wanted to invest, they had to write a check, and they couldn’t get equity in return. But this platform validates the bootstrapping idea. You can bring your friends and family on board and give them the same terms as you would an angel investor.”
“As for transparency,” Wagner says, “all the SEC filings are on the site and publicly available so they just have to click a link to see all of it.”
Frankel is quick to add though that the platform does not mitigate risk though. “Investing in securities,” he says, “is inherently risky. These are real securities and you have a high-risk of investing and not getting anything in return.”
Crowdsourced investing on the rise
According to Crowdfunding Capital Advisors, an industry group that specializes in Regulation Crowdsourcing, since May of 2016 1160 companies have filed to raise money on these platforms with over 153,000 people investing $40 million in raised capital. It’s estimated that over 5,000 jobs have been generated nationwide by this level of investment.
Another concern around regulation crowdfunding in general was simply around its effectiveness. No one knew how long it would take to raise the targets these companies set for themselves. Wagner points out that national data on crowdsourcing now indicates that most companies are funded within 90 days of launch.
Scaling for increased economic impact locally
Nvsted hasn’t announced the next few companies that will launch on the platform, but they plan at least 6 more issuers this year and possibly 20 or so in 2019. When asked if Nvsted has plans to scale beyond St. Louis, both Wagner and Frankel said there are no immediate plans to scale beyond St. Louis but that Nvsted is open to opportunities to align with like-minded organizations who want to replicate Nvsted’s hyper-local impact model.
“Although when we built the platform, we kept it in mind the ability to package up the code and license it to other organizations like [The St. Louis Economic Partnership] who want to do something similar on the local level, the intent of Nvsted is to provide St. Louis-based companies an opportunity to raise money in St. Louis and keep the economic impact here in St. Louis. We intend to keep our focus hyper-local,” says Wagner.