It's no secret that Mage pulled off a surprise victory at the Kentucky Derby under the helm of veteran jockey Javier Casellano. But you may not know that a “crowd” of individual investors had partial ownership of Mage — for as little as $50 — through the crowdfunding app Commonwealth.
This event shows us that any asset can be fractionalized, turned into a marketable security and then sold to the investor audience of the issuer’s choice. When sold directly to the public, you are seeing firsthand how powerful “equity crowdfunding” can be — a public offering of private securities, including to nonaccredited investors.
The private investing premiums and the success of venture capital and private equity investors have been all over the news for more than a decade. However, today we can all share in access to potentially lucrative investments also historically only available to accredited, qualified and institutional investors. I now have over 50 of these investments.
Capital raises open to the public allow for access to new avenues of wealth-building vehicles most people can only dream of without needing tens of thousands of dollars as the minimum investment, and only after proving that they are accredited. In a time when we have seen significant growth in retail investments since the pandemic and an increasingly informed public, crowdfunding is poised to be an access point for many to build generational wealth.
Rather than deal with the volatility of the public markets — particularly for millennial and Gen-Z investors who matured through multiple financial crashes — crowdfunding poses an opportunity for retail investors to put their money toward pre-IPO startups, emerging growth companies and capital raises (like real estate) that historically have been out of their reach as a result of a lack of awareness and their inability to meet minimum requirements like high investment minimums and accreditation.
Part of the power of crowdfunding is its accessibility. Not only are offerings able to target retail investors through advertising, they are also able to have much more attainable investment minimums. It's much more likely that a retail investor will invest $500, a typical minimum for real estate (they go far lower, too) than it is for someone to be told about it by their financial advisor and have it require a multi-thousand-dollar or even $100,000 minimum.
Further, companies such as real estate private equity and REITs don't have to rely on institutional investors and their established contacts to fund their raises. This accessibility allows companies to gain access to more capital and fosters innovation by letting younger firms gain footholds in their industries. Think about the number of alternative energy, entertainment and health care crowdfunding campaigns that are live today.
This isn't a crisis for financial advisors — it is realistically an opportunity. For many crowdfunding offerings, especially the small ones (Reg CF is capped at $5 million), it may be impractical to have a custodian or advisory team perform due diligence. The Regulation A and A+ raises are now up to $75 million. Quality issuers are launching a series of offerings in real estate, luxury sports cars, consumer products, alternative energy and even race horses. Some of these are lottery tickets on a new idea, market, or technology. Many of them distribute monthly at far higher yields than bonds, and are backed by hard assets like real estate.
Crowdfunding is a means to wealth creation that can't be ignored by financial advisors. Compliance, custody and access issues are all being resolved by custodial platforms, individual issuers and the crowdfunding ecosystem. Crowdfunding has the potential to change investors' lives and how industries raise capital. While a yield-income real estate investment may not have the glitz and glam of the winner of the Kentucky Derby, the same methods help power them and let people share in their success.
This is not a time to watch and wait, it is time to take action.
Andrew Corn heads E5A Integrated Marketing, a systematic, data-driven investor acquisition agency, and is a former CIO and ETF designer.
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