It's official: the money people are rallying to the crowd-funding cause.
President Obama signed the American JOBS Act of 2012 into law on April 5, and broker-dealers are already looking for opportunities to fund entrepreneurial startups. In fact, more than 100 broker-dealers, most of which specialize in private placements, signed up to participate in a new crowdfunding portal, www.ConfidentCrowd.com, this week at the Financial Industry Regulatory Authority's (FINRA) 2012 Annual Conference in Washington.
Michael Dinan, founder of ConfidentCrowd and chief executive of Phoenix-based investment bank Dinan & Co., said in a phone interview on Tuesday with AdvisorOne that ConfidentCrowd will be registered with the Securities and Exchange Commission, and the deals made available through the portal will be sold exclusively to FINRA-registered broker-dealers.
The idea of the portal is to screen companies seeking funding to minimize investor risk. ConfidentCrowd will provide a meeting place for member broker-dealers, businesses in need of capital and investors seeking opportunities. For investors, crowdfunding offers an opportunity for portfolio diversification, with starting investments of as much as $10,000 a year, but they should be vetted and structured by securities experts, according to Dinan.
Gary Whitehill, founder of Entrepreneur Week and a member of the Young Entrepreneur Council, said he hadn't yet heard of ConfidentCrowd but said its financial sophistication could help it rise above other crowdfunding startups in the offing.
"One hundred broker-dealers at FINRA signing up. Wow," Whitehill said. "Every crowdfunding platform built so far has been built by an entrepreneur, not an established company. This is the first one I've seen that's from an actual corporation. It's all about timing the market, and if this guy has already built it, why would you create another platform? I know a lot of people who are trying to rush into this space, but it's the first time I've seen a broker-dealer come into this. I think it's smart. What's interesting about this is that you're leveraging a network of broker-dealers."
'Crowdfunding Itself Is a Private Placement'
"We introduced the portal yesterday at the conference and we've had almost 100 broker-dealers who have signed on already," Dinan said Tuesday. "They are mainly smaller independent broker-dealer firms that specialize in private placements. That's important, because private placements are security transactions that must be approved by FINRA, and in fact, crowdfunding itself is a private placement."
Since ConfidentCrowd announced the news of its launch on Monday, the site has received about a dozen inquiries from entrepreneurs. "From the responses we've received, we believe health care is going to lend itself well to crowdfund investing," Dinan said.
ConfidentCrowd is now building its infrastructure and membership base of broker dealers and investors, while waiting for the SEC to make regulatory decisions about the JOBS Act during a nine-month rulemaking process.
In addition to broker-dealers, also stopping by the ConfidentCrowd booth at the conference in Washington are FINRA staff members, lawyers and wealth management firms, Dinan said.
"The JOBS Act and crowdfunding ARE clearly one of the hot topics. In every breakaway session I've been to, crowdfunding was mentioned either by the speakers or in the Q&A afterward," he said. "While FINRA has not been named the self-regulating organization (SRO) to oversee crowdfunding, we believe it will be."
According to FINRA BrokerCheck, Dinan is a broker currently employed by Ceres Capital Advisors, also headquartered in Phoenix. He is also still employed by Dinan & Co., which was founded in 1988. The firm specializes in middle-market mergers and acquisitions, with more than 300 transactions closed since its founding with a total transaction value of more than $20 billion.
Kickstarter and Regulatory Restrictions
