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Crowdfunding USA brought together leaders, advocates for the democratization of capital in America


Crowdfunding USA brought together leaders, advocates for the democratization of capital in America

By: Steve Sadler, CEO, Allegiancy

May 15, 2015

I recently spoke at Crowdfunding USA, an intriguing and exciting gathering of thought leaders, industry principals, and policymakers at Washington’s National Press Club. We discussed the vast potential of real crowdfunding to revitalize the U.S. economy, and we shared our real-world experiences as entrepreneurs who are actually building the future.

Many of the participants are actively working to build platforms that help realize that potential. Some compared the current opportunity of crowdfunding with the one created by venture capitalists in the technology space in the late 1990s.

Background of New Reg A, Title IV

I spoke as a business leader currently working under the rules just enacted by the new Regulation A, Title IV, of the Jumpstart our Business Startups (JOBS) Act. In March, the U.S. Securities and Exchange Commission (SEC) announced the new rules for Reg A, Title IV, which increased what a private company can raise through a public offering from $5 million to $50 million per year. Critically, the new rules also allow for the pre-emption of state regulators, creating the ability to sell securities in all 50 states, as well as allowing non-accredited investors to buy in.

My company had already used the old rules to raise capital, and we are now preparing a public offering under the new rules to raise at least $30 million.

Others at the conference were quite interested in our experiences as one of the very few that has successfully used the old rules to raise equity, and who is now using Title IV crowdfunding. The group had many questions about how it can work from a practical perspective.

They wanted to know about liquidity following an offering – if the investments made could be traded again. I was able to assure them that with the platform we used with Moloney Securities, our securities (issued under the old rules in 2014) are currently tradable and are trading in the secondary market.

People wanted to know if the costs of doing a Reg A, Title IV, offering made it worthwhile. The high cap, plus the reduced state regulatory authority, clearly does make the costs worthwhile to Allegiancy and a host of other companies.

Title III: the ugly stepbrother of Title IV?

Most at this conference group were focused on the rules yet to be enacted under Title III of the JOBS Act, which would create true Internet-based crowdfunding — in which any investor could participate in an investment opportunity. The draft rules have been lying around unfinished for more than 18 months, and many participants believe that the SEC is unlikely to do anything without pressure from Congress. Unfortunately, there are not many advocates in Congress supporting Rep. Patrick McHenry’s (R-NC) efforts to push things forward.

The draft rules for Title III currently look much like the old Reg A, with a low cap on what can be raised, and high expenses necessary to conform with the rules. As it is apparently drafted now, Title III doesn’t appear that it would be worth the costs to most businesses. The consensus in this group is that we have to go back to Congress, asking for revised requirements and a higher cap on what could be raised in order to make it practical.

Some of the players

Richard Swart, director of research in Entrepreneurial and Social Finance at the University of California-Berkeley and partner in Crowdfund Capital Advisors, talked about how true crowdfunding has no real advocates politically or financially to push Congress and the SEC to enact practical rules for Title III.

Title III apparently faces resistance from the Democratic side of Congress; and while many Republicans support it, due to its huge potential upside for the economy, Title III lacks a powerful lobby group necessary to gain traction.

With the new Regulation A, Title IV, we fortunately did have institutional sponsors in the form of the real estate lobby and others.

Kim Kaselionis, of Breakaway Funding, sees crowdfunding as a huge growth opportunity for community banks.   She recognizes that banks are now prohibited by Federal regulations from serving as real investors in promising community businesses.   She views crowdfunding as an opportunity to change that, and she is working to create a platform to put community banks back into the equation.

Large banks continue to serve large companies, but no one is meeting the capital needs of smaller businesses, which make up the vast majority of the American economy.

William Cunningham, author and economist, mentioned his effort to help a group raise capital for a coffee shop in the Anacostia section of Washington, D.C. (a low-income area).  He said no traditional institutional lender would even consider giving them a loan, or making such an investment. But he posed the question that perhaps people in that community would invest if the opportunity could be brought to them?

The democratization of capital: who would win?

We at the conference agreed that enacting Title III — and true crowdfunding – would mean the democratization of capital in the United States.

We talked about how the businesses that would benefit would be the restaurant entrepreneur who owns three restaurants in a smaller market, or one large on in a metropolitan area; a dry cleaning business; an auto retailer.

In other words, small and medium-sized enterprises – Main Street companies — stand to gain the most, but they are functionally voiceless in the legislative process today.

The other beneficiaries would be smaller investors, who also don’t have a powerful advocate.

Conversely, the losers in a new crowdfunding world would be those invested in the old, elitist system of capital-raising, in which only the largest players can participate. Their voices are legion.

Final thoughts

The people attending Crowdfunding USA were accomplished business people and entrepreneurs who are trying to create solutions and efficient platforms to make the dream of widespread crowdfunding a reality.

In the final analysis, the consensus of the group was that Title III of the JOBS Act is not going to happen right away.   Most likely, Congress and the SEC will wait and see what the results are under Title II and IV of the JOBS Act.

We are in the early days of crowdfunding. If real businesses like Allegiancy can successfully raise capital, deploy it effectively to grow and hire, and then post favorable results for investors, we will promote the full potential of crowdfunding. And that will provide the proof of concept that’s needed here.

About Steve Sadler

Sadler is the driving force behind Allegiancy, a Richmond-based commercial real estate asset manager. The firm is a highly-specialized, fee-based investment manager in secondary markets.

Allegiancy is poised to become a national leader in the new small business crowdfunding movement. Allegiancy plans to raise at least $30 million in capital this year through a public securities offering under the SEC’s new Regulation A (A+), which increases the maximum amount a private company can raise from $5 million to $50 million a year. For more information about Reg A, visit

About Allegiancy

Allegiancy manages approximately $300 million in commercial real estate assets. The company’s portfolio of properties has delivered returns that outperformed their peers by 45 percent since 2006. With a leadership team that has more than 100 years of experience, the company grew by 62 percent last year, largely due to referrals from satisfied clients.


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