Equity Crowdfunding is Working—and Can be a Self-Directed Investment
Published on June 13, 2017
Adam Sharp, founder of Early Investing (https://earlyinvesting.com/) is bullish on equity crowdfunding (ECF) and cited some good reasons in a recent newsletter he sent to subscribers.
Equity crowdfunding enables startup and early-stage companies to raise capital … and now that unaccredited investors may now participate, more people can invest via registered online portals and help these young companies get the money they need to grow.
A little history
ECF began here in the United States in 2011 when MicroVentures launched its first online deal. The following year, FundersClub launched its platform and in 2013, AngelList and others followed.
At first, only accredited investors could invest in the deals (individuals with more than $200,000 in income or a net worth of $1 million). Now that the SEC has implemented the JOBS Act in full, a wider pool of the investing public may participate in these equity funding opportunities. That includes individuals with self-directed retirement plans.
Strong early results
Adam looked at every deal on FundersClub from its July 2012 launch up to June 2016, noting an average return of 28.7%. In March of this year, AngelList released its first set of data, which covers all its deals between 2013 through the end of 2015. The results: the 2013 class of AngelList startup deals have had an average return of 46%. AngelList noted in its announcement that a 46% annual return is in the upper top quartile of all venture capitalists and private equity investors.
Of course, as Adam is quick to point out, the early-return data simply shows that the companies have raised money at a higher valuation than in previous funding rounds—there has been very little by way of IPOs or acquisitions. So things are going well in terms of raising capital through equity funding but as he put it in his letter, “the money’s not in the bank yet.” Plus, he points out, these returns occurred during a bull market in startup investments – and AngelList and FundersClub are both based in San Francisco, with strong angel investor/venture capitalist networks.
That said, the early returns he cites show promise for non-accredited ECF deals, which can have thousands of investors (as opposed to the more restricted accredited investor deals, which are limited by law to 99 investors).
This means that more self-directed investors may also include equity investments within their self-directed retirement plans.
Non-accredited equity investing
Non-accredited investors may participate in two tiers of equity crowdfunding deals:
- Regulation A+ (larger deals) in which companies can raise up to $50 million per year (effective June 2015).
- Title III (smaller deals) in which companies can raise up to $1 million per year (effective May 2016).
Equity crowdfunding via these registered online portals is working for young companies seeking necessary capital… and is generating handsome returns for those angel investors who are participating in these opportunities.
Are you interested in including equity funding in your self-directed retirement portfolio? Next Generation’s free white paper explains more about crowdfunding as a nontraditional investment allowed through self-direction, which you can download here. If you have any questions about this type of investment, or need help opening a new self-directed IRA, contact our helpful professionals at Info@NextGenerationTrust.com or 888.857.8058.