2016 is the year when online automation revolution in equities and securities of private companies will take place.
American tech firms such as FundAmerica CrowdValley and WealthForge are already leading the way in streamlining the automation process. Most importantly, these processes are in compliance with the online requirements of the Securities Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), as well as the Jumpstart Our Business Startup (JOBS) Act.
These online automations allow entrepreneurs, platforms and investors to verify accredited investors online. They will also be able to streamline deal flows, due diligence, the digital signing of documents, automated payments, and much more. Furthermore, dozens of broker-dealers and payment players have already started to create solutions to automate the progression of private deals.
Online automation is a revolution that will cause a positive shift in the crowdfunding industry in 2016. Here are some of the changes we will see in 2016 as a result of online automations:
1. New securitization of crowdfunding debt and equity will emerge
As the crowdfunding marketplace matures, institutions will accept debt and equity securitization. The application of Regulation A+, enacted by SEC in mid 2015, extends beyond equity markets. This rule has the power to take a wide range of real estate asset and illiquid debt classes to the crowd through securitization. This means an incredible level of financial ingenuity is likely to take place in the coming months.
2. More Real Estate Crowdfunding (RECF) platforms and broker dealers will automate their processes
As online automation becomes key in 2016, we will see more RECF platforms automate their processes to simplify compliance with SEC and FINRA. FundAmerica is one of the leading crowdfunding for realty platforms that has fully automated its processes in line with SEC and FINRA requirements. According to the 2015 Times Realty News Real Estate Crowdfunding Report, Realty Mogul is another top realty crowdfunding platform with an investor dashboard that automates the whole investment process from real estate investment opportunities, to the review of legal documentation to signing documents online. Patch of Land has also automated its due diligence procedures, while Carlton Group is already using CrowdEngine automation software to support its one billion dollar realty crowdfunding platform.
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3. Monitoring of realty crowdfunding platforms will become easier
In 2016, competition among realty crowdfunding platforms is likely to shape their strategies to attract entrepreneurs and investors. We, therefore, expect to see a dozen aggregators enter the realty space as more real estate crowdfunding platforms embrace online automation as a strategy to speed up capital raising activities in the industry. This move will significantly aid democratization of realty investing and make it easier to monitor and manage crowdfunding activities with just one login.
4. More crowdfunding automation software will be developed
As crowdfunding automation increases in significance, we can expect to see more software being developed to meet with SEC and FINRA requirements. There will also be the need for software to keep up with the growing demand of the automation of crowdfunding platforms. For instance, RECF platforms will be developing software to comply with Rule 15(c) 2-4 of SEC which requires that all cash raised through private securities offerings remain in a bank escrow awaiting funding contingencies to occur. Automation software will be developed for other automated functions such as e-signing, services offered by broker-dealers, investor management, investor verification among others.
David Drake is the Chairman of LDJ Capital, a multi-family office; Victoria Partners, a 300 family office network: LDJ Real Estate Group and Drake Hospitality Group; and The Soho Loft Media Group with divisions Victoria Global Communications, Times Impact Publications, and The Soho Loft Conferences. Reach him directly at David@LDJcapital.com.