The unfortunate exit of Profounder from the equity investor crowd funding scene is worth commenting on.
Equity or Investor Crowdfunding is a complex and time consuming area with often little return. While Symbid and Crowdcube and others have chosen to create bridging investment entities or coops to enable smaller investments to comply with securities legislation Profounder chose to build a platform that attempted to comply state by state with the number of non-accredited investors allowed, straight-up within existing legislation.
From my experience with running the most successful equities based crowdfunding platform in the world I believe given existing legislation it was the right way to go. While it is cumbersome and costly to have your own internal legal department and a platform that ensures compliance with legislation anything short of that is high risk to both the entity, investors and those raising funds. ASSOB has raised over $120 million over the past 5 years from predominantly unaccredited investors who directly receive stock or shares in the company profiled on the ASSOB Capital Raising Platform. To do so we have needed to have our own legal department and a computer system and staff that are continually monitoring transactions and promotion to ensure compliance.
Equity funding is a whole different ball game than the likes of Kickstarter. There it is mostly project funding where people donate the money and have no ongoing relationship with the entity. With equity funding people are buying a share of a legal entity that is growing and developing and has responsibilities and obligations as well as the expectations expressed in the documents that sought the investment. Plus of course Securities legislation obligations to shareholders.
Those who have invested in equity must be recorded in a share registry, be communicated and updated according to securities legislation and if they find a buyer for their investment the company must be able to process the transfer of ownership. A big difference from a one off Kickstarter project.
Profouder approached these obligations responsibly. Not only did they have a system to monitor unaccredited investor limits state by state but also in the promotion of the opportunity they built an engine that enabled promotion in a manner that complied with pre-existing relationship requirements.
There aren’t many successful equities based crowdfunding platforms for a reason. They need to structured to ensure compliance not only for the operator but also for the promotor of the opportunity. Not easy or cheap under any securities legislation in any country worldwide. I have nothing but praise for the path the Profounder founders took and in their implementation. My guess is that at the end of the day unrealistic compliance costs and restrictions just made it not fun anymore.
- Startup Fundraising Platform ProFounder Shuts Its Doors (techcrunch.com)
- Crowdfunding Platform ProFounder Shuts Down (tech.li)