NATHAN ROSE (Assemble Advisory): “EQUITY CROWDFUNDING WILL FOSTER INTERNATIONALIZATION OF CAPITAL MARKETS.” [EXCLUSIVE]

One of the main differences between equity crowdfunding and other forms of funding such as money from venture capitalists or business angels, he argues, is that equity crowdfunding can be used to build a strong network of people.

This has at least two advantages: a kind of pre-market test for a business idea at any stage of its life cycle as well as the possibility of spreading the risk associated with the investment across a number of investors.

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Possibly, equity crowdfunding has been booming for the last years for this reason, Nathan Rose, founder of the leading equity crowdfunding consultancy Assemble Advisory, claimed in his brand-new book, the most comprehensive equity crowdfunding how-to volume ever published: Equity Crowdfunding – The Complete Guide For Startups And Growing Companies.

One of my favorite bits from the book is:

Almost every entrepreneur would prefer to spend their time talking to customers and driving sales instead of poring over spreadsheets. But to raise money, you will need to show investors your plan. And a financial model is a very important part of that plan.

From my experience, the most common thing which it is possible to immediately notice within the entrepreneurial community is the lack of business fundamentals which is detrimental in raising funds. For example, without a financial model it would be almost impossible putting a good business plan together, thing which in turn means less chances to gain the trust of investors and ultimately gain their investment.

Oliver* spoke with Nathan to discuss equity crowdfunding’s current challenges and what we might see next.

OLIVER*: Hi Nathan, thank you for joining us. First of all I would like to ask you what’s the state of the art of equity crowdfunding?

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Nathan Rose

Nathan Rose: Equity crowdfunding is still relatively new but it has already become far more acceptable in the early stage funding ecosystem. However, there is perhaps a lack of knowledge on how to perform crowdfunding campaigns mainly because everyone who is going to campaign is new to it and usually gets stuck in between running the campaign and building the company. Moreover, there are not so many people out there who have this knowledge so there is a need for more information if the sector is to continue to grow. Crowdfunding can be learned through books, seminars, workshops and talking to those who have already done it.

O*: But equity crowdfunding is not only for startups as a number of growing companies are progressively enter the market for new series of funding…

N: You are right. In fact, another trend we are seeing is later stage companies searching for larger amounts of money and you can see examples of this through platforms like Syndicate Room and Crowdcube. Moreover, this is of strategic importance as companies which are going to drive the economy in the future are the ones which are currently too risky for banks to lend to, so we must find a way for ideas to be supported even if they are not totally proven.

However, one difficulty is crowdfunding regulations differs from country to country and generally speaking the amount that can be raised is capped at a fairly low amount. If they want to encourage the sector, the government could this by allowing larger amounts of money to be raised to help companies which are not at their early stage but a very later stage to raise equity through crowdfunding platforms.

O*: Let’s consider the investor perspective. Speaking with some of them, I have got the idea investors worry about systems and processes being inefficient in reporting. Is it true that it is difficult for investors to get the information they look for?

N: Yes, I agree. I think that more needs to be done and that even though companies have their own tools there is no a common standard, maybe it will happen in the future.

O*: During a recent interview, MIT’s Christian Catalini pointed out that the potential of equity crowdfunding is to extend capital also to either segments of the population or industries and verticals that haven’t been touched by regular forms of capital.

N: More and more people will use equity crowdfunding in the future. I agree with Catalini’s view also because I think that for some part of society accessing capital at a low cost is vital. I am just thinking about social entrepreneurs, for example, for which such a kind of equity is easier to manage if compared to the traditional one.

O*:  To what extent blockchain technology could impact equity crowdfunding from your point of view?

N: If you think of cryptocurrency, there is a chance that entrepreneurs could just bypass regulations on where the investors are coming from. If an offer accepted cryptocurrency as settlement for a new investor, there is no feasible way for a regulator to track where the money come from – effectively, sidestepping the rules. So, I guess, in this perspective regulation become more and more relevant.  There could be also issues to manage the shareholder register as you need to verify that investors hold certificates within the blockchain. However, I think that if properly managed there can be opportunities for both entrepreneurs and investors.

O*: What we should expect in the future?

N: Internationalization is something which equity crowdfunding can facilitate as the number of cross borders operations will grow in the future. This process has been nurtured by platforms with international ambition like, for example, Seedrs which recently announced the opening new offices in Amsterdam and Berlin.

This increasing internationalization could well be a catalyst for governments to define common regulatory frameworks.

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