7 Ways Entrepreneurs Will Ride Crowdfunding's Ripple Effect
A look at how the impending new crowdfunding rules are prompting entrepreneurs to predict -- and deliver -- what the expanded industry will demand.
The new crowdfunding law passed as part of the JOBS Act, which allows companies to sell pieces of their business for cash, won't be finalized until early next year. But many entrepreneurs are already champing at the bit to deliver on the services they think this new marketplace will want.
Here's a look at several industries and jobs being developed as part of the trickle-down effect of crowdfunding, according to David Marlett, Executive Director of the National Crowdfunding Association, an industry trade group that has been involved in discussions shaping this new genre of startup financing.
- The Portals. Thus far, crowdfunding has been primarily a way for artists to raise small donations from lots of people (the crowd) in exchange for rewards, such as CDs or other project-related gifts. Now, entrepreneurs are moving in to create similar online platforms for companies wanting to offer pieces of their business (think Kickstarter, but for equity). Marlett estimates there will be approximately 100 portals ready once the new crowdfunding rules take effect, although many are likely not to survive the first year of competition.
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- A New Breed of Analysts. As with any new product, there will be a demand for a ranking of the portals, says Marlett. Investors and entrepreneurs will want to know which portals have had the highest success rates. In the same way that there are analysts of financial data, there will be analysts of the various crowdfunding portals, says Marlett.
- Specialized Software. With all the new crowdfunding portals, Marlett expects a slew of new software entrepreneurs to create a variety of applications, that handle everything from allowing you to crowdfund from your mobile phone to allowing investors to research a business.
- Risk Managers. There is always a way for insurance companies to make a buck in just about any industry, and crowdfunding is no exception. In what is termed as "Keyman" insurance, investors can purchase protection should the critical leader of a project (the “key” man) die or is in some way incapacitated so that he or she can’t finish what they started.
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- Calling All Experts. From lawyers to consultants to accountants to Certified Financial Planners to public relations managers, the advent of Crowdfunding 2.0 demands a whole new genre of business specialists, each targeting a certain geographic region. Professionals will advertise their specialty heavily, too, with slogans like “We will get you into crowdfunding. We will help you along the way,” Marlett says.
- Escrow Agents. Somebody needs to hold the money. If an entrepreneur raises the full amount (or more) that he or she asked for, then the escrow agent releases the money into the entrepreneur’s hands. If not, it all goes back to the various investors. Escrow agents will be the third party handler for all the money.
- Resellers of Purchased Shares. There could be a separate, alternative market for shares of companies bought through crowdfunding. “Now we are really speculating,” acknowledges Marlett, because anyone who buys stock can’t sell it on an open marketplace for a year, so there is still some time before an alternative marketplace could even be possible.
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Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.