What Might the Crowdfunding Landscape Look Like?

*NOTE: First Venture Legal does not intend to endorse any of the organizations or businesses mentioned in this article, but offers them merely for example or informational purposes*

While the Securities and Exchange Commission spends the balance of the year drafting regulations for crowdfunding, as authorized by the JOBS Act, speculation now turns to what the crowdfunding industry is going to look like. One of the primary issues is the level of regulation the SEC will place on crowdfunding portals. While some think the SEC will impose tough restrictions similar to the regulations placed on regular broker/dealers, others in the nascent crowdfunding industry are moving to lobby the SEC to permit funding portals to be self-regulated under a FINRA-like agency.

In late March 2012, a group of crowdfunding and venture capital industry advisors and experts founded the National Crowdfunding Association (NLCFA) with the intention of creating a trade organization for crowdfunding portals, VC firms, and other parties. Additionally, the group is also seeking to persuade the SEC to avoid so-called “hyper-regulation” of the crowdfunding industry. To that end, the NLCFA endorsed the Crowdfunding Acceditation for Platform Standards (CAPS), a best-practices standard for crowdfunding portals.

A second crowdfunding industry group, the Crowdfund Intermediary Regulatory Association, was formed, along with its subsequently formed sister organization, the Crowdfunding Professional Association (CfPA), as another potential self-regulatory association for crowdfunding portals.

Many existing crowdfunding and peer-to-peer lending portals are looking to break into the equity crowdfunding field once the practice is fully legalized, including sites such as SoMoLend and Indie GoGo. However, other suggest that niche crowdfunding portals will pop up to cater to particular types of startups to match them up with niche investors who are looking to invest in a particular type of business. Such niches could be drawn along industry lines, or could simply be geographically focused, created by community boards or chambers of commerce — we have already seen local businesses draw upon community support on sites like Crowdfunder or Kickstarter.

Finally, one of the perhaps overlooked consequences of crowdfunding is the fact that crowdfunded businesses will gain a legion of brand ambassadors — with people holding equity in the company they are literally invested in its success, and will be more likely to advertise the company to their social circles. For companies that are going the ecommerce route, gaining investors all over the country can be an invaluable advertising resource.