Equity Crowdfunding's Unlikely Proof of Concept: Bernie Sanders
Bernie Sanders’ presidential campaign has demonstrated exactly why equity crowdfunding under the JOBS Act will work, when done properly.
Before anyone accuses me of displaying my political leanings in this story, please understand one thing: if I decide to vote for a bald, white, Jewish guy from Brooklyn, I’ll write in Larry David.
That being said, I admire that Bernie Sanders has done exactly what equity crowdfunding under the JOBS Act allows small companies to do: take small amounts of money from large numbers of people to fund something, all the while thumbing one's nose at the rich, powerful and elite. The parallels between his campaign funding, and equity crowdfunding under the JOBS Act, are remarkable.
1. His campaign has truly been funded by the crowd.
By the end of 2015, Bernie Sanders’ campaign had raised more than $73 million from 2,513,665 donations. Unlike most presidential campaigns, small contributions make up the vast majority of funds Sanders has raised. The average donation to Sanders during the last three months of 2015 was $27.16.
This is a perfect illustration as to how crowdfunding works. Look at the one of the first hugely successful rewards-based crowdfunding campaigns: the Kickstarter campaign for the Pebble Watch, in which 68,929 members of the crowd pledged $10,266,845 to bring the Pebble Watch to life. According to Kickstarter, the most common amount donated on their site for all campaigns is $25, almost exactly the average donation to Sanders' campaign.
2. His campaign has catered to the populace.
According to the web site OpenSecrets.org, 99.9 percent of the money Sanders has raised came from donations directly to his candidate committee, not from Super PACs or other leadership political action committees. Contrast this with candidates. A good examples is Jeb Bush. Only 22 percent of donations to Bush’s $150 million campaign war chest came from individual donations. And look at where all of that big money got JEB!
Equity crowdfunding will work the same way. Most companies using the new JOBS Act laws to raise capital need to both raise funds to grow and build a clientele for their business. The companies that get the general public excited about their product or their company will be the most successful. That can translate into large numbers of small investments from a huge number of people, most of whom then become brand ambassadors, social media promoters and eventually paying customers of the company they invested in.
3. His campaign has thumbed its nose at Wall Street.
The Sanders campaign has been extremely critical of Wall Street and the banking world. At the end of 2015, he had accepted donations totaling only $55,000 from donors in the “securities and investment” sector. Contrast this with his primary rival, Hillary Clinton, who accepted millions from Wall Street and related parties during the same period.
Equity crowdfunding has been called the democratization of the investment process, in no small part because most companies that will use Title III of the JOBS Act, or the Regulation A+ Mini-IPO, to raise capital are not far enough along for Wall Street or venture capital groups to back. Startups in particular are often run by a management team that has tapped out their credit cards, have no more friends and family to go to for financial help and cannot possibly get a bank to loan them money. Rather than futilely attempting to get funding from high-end banking and investment sectors, these companies can now go straight to the crowd to get financed, and be in a better position as they get to later rounds to negotiate with the Wall Street and VC types.
4. His campaign is focused on young people new to the process.
NBC reported that in the New Hampshire primary, Sanders received 79 percent of the votes of women aged 18-29. He also reportedly received 78 percent of all votes from first-time voters.
Ever try explaining crowdfunding to your grandmother? Tell most people 70 or older that they need to send you money for something you have not made yet, but in six months you will send them something you are hoping to create, and you will probably be laughed at. Crowdfunding is a young person’s game. Studies have shown that between 60-65 percent of donors on Kickstarter and Indiegogo are under the age of 35.
5. His campaign has been largely funded online.
During his victory speech after winning the New Hampshire primary, Sanders made this request of his supporters: “Please help us raise the funds we need, whether it’s 10 bucks, 20 bucks or 50 bucks.” Almost immediately, the overwhelming response crippled his campaign website. During the next 24 hours, his campaign raised $6.5 million, almost all of it online.
Let’s go back to grandpa again. Ask him to go online, watch a video, then invest money through a website, and he will probably smack you down with his cane. On the other hand, the younger demographic use their computers and smart phones every day, and the concept of investing online in a startup business is not intimidating to an age group who order everything through Amazon and who no longer communicate with others except through social media.
Who would have thought that this crazy Presidential election would actually teach us something? I guess if you look hard enough, there is always something to learn in every situation.