The fledging crowdfinance industry is awash with fear and loathing these days. Just below the surface of the hype and evangelism about crowdfunding’s promise to circumvent the old boys’ club of traditional venture capital and allow entrepreneurs to raise capital directly from so-called “Main Street” investors, lies a growing realization that they – the “picks and shovels” makers of this new Gold Rush – may be the only ones excited about the prospect.
The fear is that the industry, in the three years between the passage of the JOBS Act in 2012, and its long-delayed implementation completed only this past summer by the SEC, developed its deal-making capacity far beyond the actual demand – by both investors and entrepreneurs – for crowdfinanced offerings.
Anecdotal evidence of slack demand is all around the market. Industry conferences, once popping up like mushrooms after a May rain, are disappearing as fast as they appeared, and those that remain have seen their audiences thin from hundreds to dozens.
Likewise, crowdfunding platforms and portals that had launched almost daily in 2014 and 2015 anticipating a wave of small investor interest in crowdfinance opportunities have been folding, pivoting and merging their way out of crowdfinance – the recent announcements from Offerboard, WR Hambrecht + Co., and Crowdfund.co are only the most recent and highest profile news in this regard. Dozens more have foundered into walking dead status, with no current deals listed, and abandoned blogs and Twitter feeds.
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Alternative IPO investment bank WR Hambrecht + Co. is losing the senior banker who has led the firm’s Reg A initiative, putting the future of the firm’s crowdfinance program in doubt. Whitney White, a partner and Hambrecht’s head of equity capital markets, is joining Prime Trust LLC, the trust company and crowdfinance back-office administrator spun off from FundAmerica last summer.
Equity crowdfinance platform Crowdfund.co is moving away from the seed and startup capital world to focus more heavily on post-revenue and “preferably post profitable” private companies in the middle market. The company said the move is “reflective of the overall strategy” of the firm and “aligns better with the capital advisory services that underpin the core practice of the company’s founders.” But the company, an early mover in the crowdfinance market, said the shift away from startups was also due to “the overall malaise seen in debt and equity crowdfunding.”
The Securities and Exchange Commission is cracking down on investor relations firms that promote investment in emerging growth companies without disclosing that they are getting paid to tout their stock. On Monday April 10 the regulator announced a sweep of enforcement cases against executives at IR firms and the writers they hired to write bullish articles on penny stock companies masked as unbiased analyses which were posted on online investment websites including Seeking Alpha, The Street, Motley Fool and Benzinga.