As recently covered in the Wall Street Journal, states such as Georgia are on the vanguard of putting equity crowdfunding theory into practice. They’re removing the “accredited investor” limitation, allowing people like you and me to invest in private companies, and they’re doing it ahead of the SEC’s implementation of the JOBS Act. For those of us who believe that “accredited investor” limitations are antiquated and unjust, such state-level efforts represent real progress toward a better future. That’s why, after helping to craft the crowdfunding provisions of the JOBS Act two
years ago, I began working with Mark Easley and Steve Reaser to introduce an improved version of crowdfunding in my home state of North Carolina.
The availability of quality investments that are risk appropriate for crowdfunding investors will be key to ensuring the success of crowdfunding over the long term. Investing in the equity of a startup or small business can be risky. For most people, investing a small portion of their overall portfolio in
the riskiest assets is prudent. How small, and whether that portion amounts to anything significant in absolute terms, is a matter of some debate. Fortunately, “equity” crowdfunding is only one part of
the story. New crowdfunding rules and technology innovations are being employed to expand the savings and investment options available to the 98% of us who are not accredited investors. For example, GROUNDFLOOR has recently used Georgia’s rules to create an important world first: An opportunity to invest in loans which benefit from a first lien on real property, starting with as little as $100.
Crowdfunding the renovation of a multi-family rental property in Midtown Atlanta certainly won’t generate the financial returns of “the next Facebook or Google.” It’s not a lottery ticket. But it’s not a gamble either. This class of stable, secured asset offers significant value for the average investor’s portfolio. Loans like this are the first to be repaid. They are due to be repaid within a specific time period. If they are not repaid, the lenders ultimately have a right to
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assume ownership of the asset through foreclosure. These are the same terms banks themselves use when lending out your deposits. Crowdfunding rules like Georgia’s allow us to cut out the middleman and return five to ten times the interest of your savings account or CD, all with a secured investment.
There are some who worry crowdfunding will be a roulette game, resulting in losses for most people who invest in the riskiest of assets. But we don’t see crowdfunding as a game with one outcome. Instead, we see a broader, more inclusive and more sensible future, patiently and prudently built on access to the full range of wealth generation tools that the accredited investors and institutions have always had at their disposal. Take a look at what we’re doing at GROUNDFLOOR today with our first project in Georgia. What do you think of it? Tell us in the comments below, or write us anytime at founders@groundfloor.us. We’d love to hear from you.
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