Another December is upon us, and once again it is time to dust off that flux capacitor, steal some plutonium and see what the future holds.
Since I was 4 for 4 in my 2014 predictions, last year I proclaimed myself a “Crowdfinance Clairvoyant”. Although I didn’t score as well this year, don’t revoke my title just yet. Most of my 2015 prognostications are still unfolding. As someone who is neurotic about completing tasks ahead of schedule, I guess I just tend to have an overly enthusiastic timetable.
MY 2015 FORECAST REVISITED:
- I predicted that in 2015 a lot more attention would be given to venture exchanges and secondary markets. I also anticipated that legislation would be introduced to establish a new framework for small company liquidity. In May 2015 the “Main Street Growth Act” was introduced by the House Financial Services Committee. The proposed bill calls for the creation of “venture exchanges” to support secondary trading of private shares. I’ve pronounced on multiple occasions that while the JOBS Act increases a smaller company’s ability to access funds, it fails to tackle their most pressing need – a respectable marketplace where they can blossom. Without a vibrant venture exchange, exempted crowdfinance offerings will never have the chance to gain mass traction. This bill provides some hope.
- Last year, I projected that data would transform securities marketing. Although issuers still relied on traditional marketing programs like “dog and pony” roadshows and sales calls in 2015, I still maintain that we are in the early stages of a “FinTech Data” revolution, and that a process known as “algorithmic deal matchmaking” will ultimately change the way securities are marketed and sold to the public. Dealflow is doing some really groundbreaking work in this area. (Check out: http://daraalbright.com/2014/10/09/the-evolution-of-securities-marketing-and-its-impact-on-issuers-intermediaries-and-investors/and http://www.thealphapages.com/content/dealflow-keeping-the-fin-in-fintech?_ga=1.29102396.1833424154.1445874305).
- I also prophesied that financial planners and retail investors would flock to P2P funds. I stated that “in the coming years, expect a growing number of conventional banks and brokerage firms to begin offering their retail clients an opportunity to invest with P2P fund managers, especially through self-directed IRA accounts.” While they have yet to flock, I believe that an incredible amount of groundwork is currently being laid for the “flocking” to ensue. In fact, in 2015, a number of new products, tools and technologies have already emerged to support financial advisors and their retail clientele (see: http://daraalbright.com/2015/06/03/the-road-to-crow-centric-retail-alternatives-and-the-future-of-financial-products/ and http://daraalbright.com/2015/04/13/financial-advisors-please-meet-p2p-p2p-online-or-marketplace-lending-or-whatever-you-want-to-call-yourself-please-meet-financial-advisors/).
- Last year I went out on a limb and predicted that the “accredited investor” rule would be amended – if not abolished altogether. Although I stated that this was unlikely to occur in 2015, I believed – and still do – that it will happen eventually. I maintain that this rule is unconstitutional and discriminatory. And its injustice remains a big part of my reason for directing my attention to the underserved retail investor market.
- I predicted that in 2015 the SEC will implement its final rules for Title IV (Reg A+), and that that the new regulatory framework would include a preemption of state blue sky laws – despite NASAA’s threats. This did indeed happen on June 19, 2015. While Reg A+ has yet to change the small cap IPO landscape, I do believe that the stage has now been set.
- Finally, I predicted that 2015 would be another banner year for FinTech IPOs with Prosper leading the next-generation of online lending companies into the public arena. In addition to Prosper, I suggested that the following crowd-centric companies had the potential for being public in 2015: CircleUp, Indiegogo, Kabbage and Funding Circle. I was way off on this one. I guess this is a shining example of where my optimism stands in the way of reason. With so much private capital chasing them, today’s hottest growth companies have no desire to be public. Just ask UBER (see: http://www.crowdfundinsider.com/2015/10/76123-how-much-money-would-you-be-worth-if-you-had-invested-in-uber-on-angellist/).
Click here to view my 2015 forecast in detail.
All in all, 2015 was indeed another monumental year for crowdfinance. But, brace yourselves, because I foretell that 2015 will prove trivial compared to what 2016 will unleash.
MY 2016 FORECAST:
Robo-advisors will find opportunities in crowdfinance:
This past July I produced FinFair, the first conference to introduce Wall Street to the leadership, products and technologies that are driving the crowd-centric retail alternatives market and democratizing the investment landscape. Although the program focused on crowd-driven assets, I was surprised to discover that the event sparked the interest of robo-advisors. I’m not suggesting that they are jumping on the crowdfinance bandwagon just yet. But I do believe that in 2016, robo-advisors will begin to appreciate the significant role that crowdfinance plays in “modern retail financial services”; hence, they will start exploring potential “crowd-tech” synergies. For example, I wouldn’t be surprised to see a partnership between a robo-advisor and a marketplace lending platform or a P2P note aggregator.
Retail Financial Product Ingenuity will Escalate
It was also at FinFair where we unveiled innovative applications of Reg A+ that expanded beyond the small cap equity landscape. At the event, Brian Korn, a partner at the law firm of Manatt, Phelps & Phillips, LLP, illustrated ways that Reg A+ could be used to create “Payment Dependent Notes” – similar to those issued by Prosper and Lending Club. This novel use of the exemption will have the effect of opening up marketplace lending to a wider range of unaccredited investors. A few weeks later GROUNDFLOOR made history by becoming the first marketplace lending business to actually receive SEC approval under Reg A+ to sell small increments of its real estate loans – what they refer to as “Limited Recourse Obligations” (LROs) – to unaccredited investors (see: http://www.thealphapages.com/content/getting-in-on-the-groundfloor? ga=1.208656850.1514313856.1445874610). I believe that these landmark events signify the beginning of what will become an unprecedented era of retail financial product ingenuity. Expect to witness the unveiling of many more creative investment products.
Straight Equity Title III Offerings will Fall Flat:
Anyone who has ever tried to raise money for a startup knows just how challenging it is. Straight equity deals for early stage companies rarely – if ever – gain traction in the offline world. I expect this philosophy to carry over to the online financing sector. Whether it is through Title III, intrastate crowdfunding exemptions or Reg A+, I foresee innovative financing structures emerging to satiate the more “risk adverse” retail investor. I predict that we’ll see more creative deals arise that constitute various combinations of rewards-based, equity-based, debt-based and/or revenue-share-based crowdfunding. I believe that these unique hybrid structures will be more palatable to retail investors as they will mitigate risk as well as provide a more meaningful investment return.
Reg A+ “Testing The Waters” will Call Attention to Serious Title II Crowdfunding Flaws:
While “Testing the Waters (TTW)” will prove invaluable to a Reg A+ issuer’s branding efforts, I believe that there will be a sizeable discrepancy between the level of interest garnered during the trial run and the amount of capital that is actually raised. I foresee this ultimately leading to new guidelines for general solicitation under Title II – particularly given the SEC’s recent concerns over platforms misrepresenting deal interest as capital raised.
The Crowdfinance Playing Field will Undergo Leadership Change:
Expect fresh deeper-pocketed crowdfinance leaders to emerge and some of the industry’s earlier pioneers to vanish. With less regulatory uncertainty, more accomplished, business savvy players will be lured to this burgeoning industry. Many will come to overshadow some of the less experienced first adopters who have been struggling with flagging business models and an inability to grow revenue. As a result, I predict the crowdfinance playing field will look very different next year.
Hoverboards will Disappear from Toy Store Shelves:
Early crowdfinance pioneers won’t be the only thing disappearing in 2016. I predict that those self-igniting Hoverboards will be removed from the market until manufacturers find a battery that doesn’t spontaneously combust. Okay, I admit, I snuck this one in at the end just to improve my success rate. It also never hurts to throw in another “Back to the Future” reference in an article.
This is always the part of my annual forecast where my Christmas Eve birthday renders me overly pensive – forcing me to think beyond the crowdfinance microcosm. While this nascent industry fills me with optimism, part of me can’t help but view other aspects of our society with cynicism and fear. I look around and find so many instances where reality is being overtaken by fantasy.
I see theories and opinions displacing facts – even in the media. I see politicians getting elected on image rather than on substance. I see businesses appreciating through PR stunts instead of revenues. I see our courts overwhelmed with frivolous lawsuits that are being argued with tactics in place of truth. I watch our economy inflating through monetary policy as opposed to real monetary growth. And most alarmingly, I see nations trying to fight a war against an enemy that they’re too scared to even identify.
We can’t bury our heads in make-believe and pretend that civilization can sustain itself on this path of illusion. Only by confronting reality will we be able to progress.
So in addition to love, peace, happiness, prosperity and hope, may this new year bring the courage and the wisdom to face truth. Whether it’s in politics, business or even our personal relationships, let’s all resolve to make honesty and integrity a cornerstone of 2016.
And, as always, may all of your Hanukkahs, Christmases, Kwanzas and Festivuses be filled with joy.