What if emerging growth companies could easily reach 20 million investors! Sounds impossible but wait a minute. Last time I checked my Linkedin account it suggested I am connected to 20,882,416 contacts via 1st connections, 2nd connections (aggregate 1st Degree networks) and group members on Linkedin. Given I am a “top” 1% member of Linkedin (connected to 2,700 members), this reach may be unrealistic for most. However, even emerging growth company executives with 500-700 Linkedin members may have access to upwards of 5-10 million contacts.
What does this really mean in the context of private equity investing? It means under the new 506 (c) general solicitation rules (ability to solicit people with no existing relationship) companies can virally spread their message (via social networks) to those who otherwise may not become aware of the opportunity to invest in the next private “Google.” Couple this awareness with the ability to invest at lower investment thresholds (more readily diversify within private equity allocation), and this is a cocktail for adoption by Accredited investors.
Online investing in private equity is truly going viral! With the advent of advancements in technology (social media), emergence of crowdfunding (donation, reward, peer-to-peer, equity), and unprecedented legislation (JOBS Act approved in 2013), there has never been a better time for leveraging direct investing platforms (crowdfunding portals) to reach investors!
Crowdfunding portals “empower” company and investor networks (“rolodexes”) via the same technologies utilized by leading social media companies Linkedin, Twitter, and Facebook. Crowdfunding engines leverage text analytic (XML) technologies to collect data (from member profiles/company profiles), tag data (investor preferences/deal terms), and present data (match crowdfunding members with company offerings) via advertising, notifications (email, workflows).
The first and most obvious network to empower is Friends and Family. Empowering personal networks (friends, family co-workers, former co-workers, and prospective/current investors) is essential when seeking capital at earlier stages (seed), given many capital providers (venture capital) have moved to later-stage opportunities. HealthiosXchange, an equity crowdfunding portal serving the healthcare industry from “Seed to Exit,” empowers member friends and family networks by:
• Providing tools for tracking referrals (personal ref codes sent to networks requesting referrals to join portals/follow companies/invest in deals), event participation (webinars, road shows), and company page visitors/activity
• Keeping networks informed of catalysts (achievement of key milestones); encourage them to become investors (“Follow” companies and receive updates in real-time)
• Encouraging page “Followers” to conduct due diligence by interacting with management, members (friend, follow, message, share) and by reviewing online documents, scoring etc.
• Encouraging page “Followers” to share portals joined and deal activity with networks via social media platforms (Linkedin, Twitter, Facebook)
• Incentivize page “Followers” to persuade networks to “Follow” and “Invest” in private equity offerings (i.e. if a broker dealer, ability to receive commission; if not, eligible to receive carry)
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