Crowdfunding and the Evolution of Private Equity Investing
Private equity investing has become an increasingly hot topic in recent years, and chances are you’ve taken notice. Maybe your Twitter feed is flooded with opinions about the latest tech company IPO, or your neighbor tipped you off about a new round of funding at the startup she works for. Perhaps you’re even more likely to search for crowdfunding websites than the latest price on your favorite blue chip stock.
But the obsession with private equity goes beyond the increased media coverage and lively cocktail party conversations. These days, more and more investors are actually participating in private equity deals, fueled in large part by the recent proliferation of equity-based crowdfunding websites. These platforms, which allow investors to receive equity in the business they choose to back, have made it much easier for accredited investors to discover new startup funding opportunities. No longer do you need to be a Silicon Valley player to find the next big deal – all you need nowadays is a laptop and an internet connection.
Equity based crowdfunding platforms have only been around since 2012, and yet they’ve already managed to raise roughly $400 million. In fact, OurCrowd expects that number to more than triple this year. Why? Because of the 8.7 million accredited investors in the U.S. alone, only 3% of them currently participate in startup investing. And since the JOBS Act only cleared the way for platforms to publicly solicit these investors last September, you can bet that number has nowhere to go but up.
Here at PENSCO, where we custody alternative assets for our clients’ IRAs, we’ve taken notice of the upward trend. Historically, the majority of investments we’ve held have been in the real estate category. Today, over 50% of the new investments we see are in private equity, and a growing number of those deals are discovered through crowdfunding platforms. Our customers love that these sites allow them to look beyond their current deal to the next one – something that wasn’t so easy to do before equity based crowdfunding came into the picture.
With more and more of our clients turning to crowdfunding sites, we’re committed to helping them navigate the considerations and challenges that go along with this new investment landscape. Over the next few months, we’ll be doing a series here on the PENSCO blog about all things crowdfunding – from legislation to risk to trending topics within the space. We’ll also partner with crowdfunding experts and platforms on some posts to bring you insights from around the industry.
Got a crowdfunding question you’d like to see answered here? Let us know in the comments section below!
This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.