If you operate a Title II Crowdfunding platform, whether Rule 506(c) or Rule 506(b), you should add the functionality for Title III. Two reasons:
- It will be good for you, i.e., you will make more money.
- It will be good for our country.
Adding Title III Will Be Good for You
Any day now the SEC will announce a bunch of changes to the Title III rules, including these:
- Sponsors will be able to raise $5M rather than $1.07M.
- There will be no limit on the amount an accredited investor can invest.
- The limits for non-accredited investors will be raised.
Most of the deals on your site are less than $5M. Even though the $5M limit under Title III is per-sponsor rather than per-deal, this means that if your Title III portal were up and running today you could expand your potential audience from about 10 million households to about 120 million households.
There are four benefits to making deals available to non-accredited investors.
The first, immediate benefit is that non-accredited investors do have money. By adding non-accredited investors you make it easier to fill deals.
The second, immediate benefit is that adding non-accredited investors allows you to market to affinity groups. If you’re selling a mixed-use project in Washington, D.C. you can market to the neighbors. If you’re selling a company developing a therapy for cystic fibrosis you can market to everyone whose family has been affected.
The third, immediate benefit is you can start taking commissions. If you’re like most Title II portals you spend time and effort to make sure you’re not a broker-dealer. If you were a Title III portal those issues would disappear.
The fourth benefit is not immediate but is much more important than the first three, in my opinion. It’s about building a brand and a funnel of investors.
If you operate a portal you are selling a product, no different than shoes or automobiles. Just as Mercedes offers the A-Class sedan to bring less-affluent customers into the showroom and the Mercedes family, adding Title III can vastly increase your audience and revenue as some non-accredited investors become accredited and the SEC further relaxes the rules for non-accredited investors.
Alternatively, they could start shopping in somebody else’s Title III showroom.
Adding Title III Will Be Good for the Country
Our country is suffering in many ways. Yes, we’re suffering politically, but in some ways the political suffering is just one manifestation of our deep and deepening income and wealth inequalities. You can find a hundred charts showing the same thing: the very wealthy are becoming wealthier while everyone else, especially the lower 50%, becomes poorer and more desperate.
When I was a teenager I delivered newspapers in Arlington, Virginia. In my suburban territory I delivered papers to accredited investors, whose houses were a little bigger and drove Cadillacs and Town Cars, and to non-accredited investors, whose houses were a little smaller and drove Chevies and Toyotas. One of my customers was George Shulz, the Secretary of the Treasury, who came to the door in his bathrobe and tipped well.
Tax policies, trade policies, all the instrumentalities of government have been focused over the last 40 years to serve the interests of the well-off. Part of it was cynical politics, part too much faith (which I shared) in the power of markets to lift all boats. Most of the boats in our country remain moored at low tide. Steve Mnuchin and his wife wouldn’t dream of living in that neighborhood today while 98% of Americans couldn’t afford to.
Call me an idealist, but I believe Crowdfunding can at least claw back some of the inequality. The deals on your Title II portal should be available to ordinary Americans. They should participate in those returns. They should regain faith that the capitalist system can work for them. We should all hope that the phrase “institutional quality,” when applied to investments, will lose its meaning.
Crowdfunding isn’t the whole solution, but it’s part of the solution. And you can make it happen.