By Brock Murray
While the regulatory frameworks and rules for investment crowdfunding with accredited investors and non-accredited investors vary from country to country, there are four key considerations for bringing an online investment platform to market.
Depending on the platform structure and area of operation, the themes below highlight the considerations when dealing with security commissions and regulatory authorities.
General Partner vs. Intermediary models
The real estate marketplace model is what we define as the intermediary model, where the platform owner and the companies raising capital are independent. While the platform may screen issuers and deals for quality, the deals are still managed by third party issuers. The business model is usually transaction success fee driven, which in most countries requires some type of financial license. The other option is the General Partner model where the platform is being used to market proprietary deals online, using a management fee + % of profits business model. The General Partner model is the easiest as a starting point in most regions as firms are typically shifting their offline activities online and leveraging the same compliant processes.
Solicitation vs. Non-Solicitation
The solicitation ability will be a game changer in the long term, particularly with Title III rules in May 16th 2016, which include non-accredited investors. It is great to see frameworks in place for accredited investor solicitation in a number of influential countries as a starting point. Many groups will be more comfortable in the short term launching a non-solicitation platform. This is because it’s in line with their current investor onboarding methods without “generally” soliciting, such as scheduling web conferences/phone calls/face-to-face meetings with new investors that have been referred, introduced, etc. Under this scenario, the investment platform is acting as an investor relations tool for efficiencies and a better investor experience. General solicitation can always be used at a later date for permitted marketing strategies.
Debt vs. Equity
Debt based platforms often sidestep stricter securities laws regarding equity. Starting with debt deals rather than equity, and evolving the platform for equity deals in the future is a possibility. Understanding the differences in compliance related to the two instruments may create a feasible roadmap for the business.
Domestic vs. Foreign Investors
Regulatory bodies in most countries are focused on protecting domestic investors than foreign investors. Whether your focus is high net worth individuals or institutional firms, dealing with foreign investors may open up additional possibilities or liabilities. Thus, it is important to grasp the implications of both focus to navigate the best go to market strategy.
Under every scenario, enlist the services of an experienced securities lawyer in your region to create a go-to-market strategy for your platform that is fully compliant.
Brock Murray is the co-founder and CEO of Katipult, crowdfunding software for real estate crowdfunding, private placements, investor management, and listings. He has extensive knowledge in capital markets and a strong interest in international banking and cross border payment flows.