Equity Crowdfunding for Investors: A Guide to Risks, Returns, Regulations, Funding Portals, Due Diligence, and Deal Terms

CHAPTER 5

Deal Flow

As soon as the SEC issues final rules under Title III of the JOBS Act, all investors, including nonaccredited investors, can browse through Title III offerings on a number of equity crowdfunding portals and broker-dealer platforms. In short, tens of millions of ordinary people will be able to buy shares in startups and early-stage companies online.

This is a dramatic departure from the restrictive (or protective, depending on your point of view) rules that U.S. investors and entrepreneurs had lived under since 1933. In this deregulated private securities environment, what kinds of companies will seek to raise capital through equity crowdfunding? What will the deal flow look like as the equity crowdfunding industry grows and matures?

In some respects, the companies that make equity offerings via crowd-funding will be the same kinds of companies that have been making equity offerings to angel investors for decades, through more traditional financing channels. For example, many of them will be companies that have raised all the money they can from founders, family, and friends (the three Fs) and still need capital to grow, but are still too small to attract the interest of commercial banks and venture capital firms. Angel investors have traditionally occupied this awkward middle funding stage. Until a few years ago, startups and early-stage companies had to struggle to find angel investors, and vice versa. Now Reg D offering platforms and Title III crowdfunding ...