CTO of Title3Funds and a crowdfunding pioneer with expertise in Fintech & Retail Ecommerce & Digital Merchandising & Marketing
If the coronavirus pandemic has taught us anything about investing, it’s that when everyday people have the time and the need, they will explore new investment opportunities. Online stock trading platform Robinhood recently raised $200 million in funding, bringing its overall valuation to a remarkable $11.2 billion. The extraordinary success of their latest funding round can be attributed to the surge in users seeking new avenues for generating wealth during Covid-19.
Beyond a spike in online investments, online commerce, in general, has soared this year. According to an Adobe report, online spending in May hit $82.5 billion, up 77% year over year. Vivek Pandya, Adobe’s digital insights manager, shared in a Forbes interview that “it would’ve taken between 4 and 6 years to get to the levels that we saw in May if the growth continued at the same levels it was at for the past few years.”
Based on the current growth in online investments as well as the skyrocketing use of digital platforms for commerce in general, I predict that the investing landscape will look a lot more like e-commerce within the next five years. Taking this forecast one step further, I believe this change will be driven by the crowdfunded investments asset class.
Why Amazon and eBay offer great models for investments
Amazon and eBay are perfect models for what the investment space could be in the near future. These e-commerce platforms accomplish a simple thing: They connect buyers to sellers. Investing is very similar, except it’s stocks, debt and equity that people are buying and selling.
As artificial intelligence (AI) and machine learning (ML) algorithms used by e-commerce platforms to recommend products improve, using a platform like Amazon to make investments will be much more appealing. Imagine visiting an e-commerce platform that recommends investment opportunities according to your interests alongside other retail products.
If you’re vegan, you might see an equity offering for a new company that sells faux leather products. If you’re into sustainability, a startup with an app that helps you locate businesses with sustainable practices in your zip code could be featured. If you’re an avid traveler, perhaps you’d be interested in an app that provides updates on places that are safe to visit during Covid-19. Particularly relevant to the cultural focus on social justice, a bevy of products and services created by Black-owned businesses could be featured. This is what I believe the future investment ecosystem will look like.
‘Adventure capitalists’ will pave the way to a new investment ecosystem
I like the term “adventure capitalist” to refer to people who are pioneers in the investment space and are interested in diversifying their portfolios to incorporate different asset classes. Their exploratory attitude toward investing is why they will be the ones who drive the change we will see in the investment space. In particular, adventure capitalists are showing interest in the nascent asset class of crowdfunded investments.
Recent research shows that crowdfunded investments may be at a turning point, with record-breaking investment activity logged this past July, according to Crowdfund Capital Advisors (CCA). The report stated that “this July was the highest month of new offerings since the industry started with 128 new offerings. This was 74 more offerings than July 2019 or a 137% increase.”
July also saw the highest investor participation, with more than 40,000 participating in campaigns, according to an August CCA newsletter. The Covid-19 pandemic is likely to be contributing to this growing crowdfunded investment activity, as companies — new and established — seek new avenues for obtaining capital and regular people discover this novel opportunity for investing in their financial futures.
Regular people who are not accredited investors were barred from investing in private companies, which generally offer some of the most favorable terms, until the JOBS Act went into effect in 2016. The relative novelty of crowdfunded investments is the reason this asset class remains relatively unknown. As of this year, more than $700 million has been invested in Reg CF companies. By contrast, it’s not uncommon for a single VC fundraising round to be $100 million.
Clearly, there is a lot of room for growth in the crowdfunded investments space, creating a huge opportunity for adventure capitalists to become pioneers and lead the mainstreaming of this more democratic investment space.
Why Reg CF is ideal for expanding the online investor audience
Unlike stocks, bonds, mutual funds, 401(k)s and other more traditional investment options, Regulation Crowdfunding (Reg CF) is the perfect asset class to spark the evolution of the overall investment ecosystem. For one, investing in private companies is more exciting. There is greater potential for reward, and investors have the opportunity to bring about cultural change through their investment choices.
People already show support for companies when they purchase their products. Millennials, in particular, are more likely to purchase products that align with their values, whether that’s sustainability, social justice or ethical product sourcing. Why not benefit from actually owning a piece of those products you already believe in?
As more people become owners — not just consumers — of products they believe in, we will see real cultural transformation take place. Given Reg CF investors do not need to be accredited, there is more widespread appeal across demographics, including age, race, gender and socioeconomic status. This inherent inclusivity is why crowdfunded investments have great potential to expand the audience participating in the online investment ecosystem.
Now is the time to make the leap into e-commerce investing
Because of this moment in history, when people around the globe are staying home because of the coronavirus pandemic, online commerce has become that much more important to economic and individual prosperity. People are already doing more of their shopping online, so why not do their investing online, too?