Category: Crowdfunding Portals

Scalability In Crowdfunding

On By crowdfundattnyIn Crowdfunding, Crowdfunding Portals, P2P LendingLeave a comment

Growing plant stepThe Crowdfunding market continues to grow rapidly, increasing in deal size, deal volume, and sophistication. The rapid growth will likely continue for the foreseeable future, as more investors and entrepreneurs learn about the opportunities. And the growth will accelerate if and when:

  • The SEC finalizes regulations under Title IV
  • Congress refurbishes Title III
  • Portals move toward pooled assets
  • Portals are created in more vertical markets
  • Deals become standardized across portals
  • Formally or informally, we get a secondary market for Crowdfunded investments

All those things will move the dial toward a larger, more robust Crowdfunding market. But to penetrate the mass market – to truly scale – Crowdfunding needs something more, and that thing is coming.

Like a telescope, a Crowdfunding portal has two ends: an investor end and a deal flow end. Today, the investor end of the telescope is almost infinitely scalable while the deal flow end has proven much more difficult. Even given the best technology and the best people, how do you push more deals through the narrow opening? More exactly, how do you perform effective due diligence on all those deals?

Look at the P2P sites, Lending Club and Prosper. They’re doing Crowdfunding, too, and they pushed more than $5 billion of consumer loans through their due diligence processes during 2014. They did it mainly by reducing due diligence to a series of algorithms. In fact, they perform so little due diligence of the old- fashioned variety that some states don’t allow them to sell securities.

Three factors have allowed Lending Club and Prosper to streamline due diligence and scale up:

  • They started with a built-in technology for determining a consumer’s creditworthiness: namely, a FICO score.
  • Starting with FICO scores, they created their own proprietary scoring systems using their own data. The more data they accumulate the better their scoring systems become, in a virtuous cycle.
  • They have educated their investors. Rather than allocate their entire investment to a single loan, investors diversify, trusting the averages.

In some respects what Lending Club and Prosper have done with consumer debt is no different than what Billy Beane did with baseball players: replacing a traditional process that relied on human expertise (scouts) with a new process that relies on data (sabermetrics).

At first glance, the typical Title II Crowdfunding site, whether real estate sites like Patch of Land and iFunding or venture capital sites like FundersClub, look a lot different than a P2P site. Fundamentally, however, they are in the same business. The question is not whether Title II (and Title III and IV) sites will move toward the P2P model, the question is is how quickly and in what ways.

I believe the convergence will happen from both ends.

First, portals are going to create the equivalent of FICO scores and the scoring systems of Prosper and Lending Club, even for complex real estate projects and hi-tech startups. Living in a world of big data, I believe this is not only possible but inevitable. As we speak, lots of smart people are looking at lots of data and trying to draw meaningful correlations between data and outcomes.

Is there a correlation between the FICO score of a real estate developer and the success of his next two projects? If an entrepreneur has had one successful exit is she more likely to have a second? If an angel has invested in three successful deals is he likely to have a fourth?

The world is flooded with data and fast computers. I believe Crowdfunding portals will crack the code, a little bit at a time, moving from a traditional, hands-on due diligence process to a data-driven, algorithmic process. Like old-time baseball scouts, those comfortable with the traditional processes are likely to cry foul, pointing out the inevitable gaps in statistics. They’ll be right in a narrow sense, but the world will move on nonetheless.

Second, because of the pressure to scale, portals will gravitate toward products that lend themselves to being scaled. It’s not a coincidence that Lending Club and Prosper sell consumer debt! The market suggests that real estate debt is likely to be the next product to scale, with real estate equity going to the back of the line. Going a step further, I’m guessing that the more difficult to crack the code in a given product, the higher the margin and the lower the volume.

If I knew exactly how the market will play out I wouldn’t be a lawyer! Nevertheless, it’s an incredibly exciting time.

Questions? Let me know.

Crowdfunding Is Just the Internet

On By crowdfundattnyIn Crowdfunding, Crowdfunding Laws, Crowdfunding PortalsLeave a comment

red mouse with money and comment

Fortunately for me, there are a lot of complicated legal issues around Crowdfunding, including:

  • The differences among Title II, Title III, and Title IV
  • The differences between Rule 506(b) offerings and Rule 506(c) offerings
  • The differences between accredited investors and non-accredited investors
  • The Trust Indenture Act of 1939
  • The Investment Company Act of 1940
  • Applying broker-dealer and investment adviser laws to Crowdfunding portals

But at a higher level Crowdfunding isn’t complicated at all. Crowdfunding is just the Internet coming to the capital formation industry.

What happens when the Internet comes to an industry? Look at the publishing industry and the travel industry and the music industry and, increasingly, the entire retail industry:

  • Buyer and sellers connect directly
  • Middlemen are displaced
  • Prices decrease as the industry becomes more efficient
  • The middlemen being displaced are sure it won’t happen as it’s happening
  • In the end, the industry looks completely different and we all take it for granted

In Crowdfunding, the “sellers” are entrepreneurs and real estate developers seeking capital and the “buyers” are investors. The middlemen are the lawyers, bankers, finders, brokers, venture capital funds, investment advisors, and all the others who for the last 80 years have played an indispensable part in connecting entrepreneurs with investors. Today, for the first time, entrepreneurs and investors can connect directly, via the Internet. The middlemen have already started to be pushed to the side. The picture in my mind is an ice field slowly breaking apart as temperatures warm.

People sometimes ask whether Crowdfunding will last. I respond “When was the last time you planned a vacation through a bricks-and-mortar agency?” The Internet is here to stay!

The capital formation industry is enormous – far, far bigger than the book selling industry or the travel industry. And the middlemen in the capital formation industry enjoy far greater political power than Barnes & Noble. But in the end, resistance is futile.

As you’re planning and managing your own portal, or any other Crowdfunding business, pause every now and then and remember that for all the legal complexity, for all the nuts-and-bolts, day-to-day grind of generating cash flow, Crowdfunding is nothing more or less than the Internet come to the capital formation industry.

Questions? Let me know.

How to Present Investor Disclosures in Crowdfunding Offerings (And How Not To)

On By crowdfundattnyIn Crowdfunding, Crowdfunding Portals, Investing, Investor Disclosures, Portals, SEC, Title II, Title II CrowdfundingLeave a comment

Title II Crowdfunding is often referred to, more or less accurately, as “online private placements.” It’s time the industry turned the online, digital, aspect of the offerings more to its advantage.

Remember when newspapers first came online? Remember how interesting they were visually? I’m being sarcastic. They were nothing more than photographs of the paper version, failing to take advantage of the digital platform and its unique capabilities.

Too many (not all) Crowdfunding portals take the same approach to providing investor disclosures. You click through the process and suddenly see an enormous PDF document that is nothing more or less than a paper private placement memorandum, complete with Schedules and Exhibits. You’reOnline document supposed to scroll down and “sign” at the bottom. On some platforms the investor actually has to click I’m Ready to Invest before he sees the disclosures!

There are at least three things wrong with this approach:

• Investors can’t be happy with it.

• It doesn’t convey information effectively.

• The disclosure might be legally ineffective. I think about a plaintiff’s lawyer cross-examining the portal operator, pointing to a disclosure on page 67 and asking “Did you really expect my client to read all that at the end of the click-through process?”

It doesn’t have to be that way! There are much better ways to provide information online. Take a look at today’s online version of the New York Times or Wall Street Journal to see how far we’ve come.

Crowdfunding portals can do the same thing. The first step is to move the mental image of that paper PPM into Trash or the Recycle Bin (depending on whether you’re Mac or PC) and start from scratch. What are we trying to accomplish here? What are the tools at our disposal? Pose that question to some creative people and you’ll get a whole range of possibilities, all of them better for investor, sponsor, and portal.

Questions? Let me know.

Are Crowdfunding Portals Investment Advisers?

On By crowdfundattnyIn Crowdfunding, Crowdfunding Portals, FundersClub, Investment Advisers Act of 1940 (IAA)Leave a comment

Looking for the solution of the mazeInvestment advisers are regulated by the Investment Advisers Act of 1940 – another of those old laws that govern today’s securities markets – and by also by the states. Do these laws apply to Crowdfunding portals?

It depends.

The IAA generally applies to anyone who:

  • “[E]ngage[s] in the business of advising others. . . .as to the value of securities or as to the advisability of investing in securities. . . .” or
  • “[I]ssues or promulgates analyses or reports concerning securities.”

On the other hand, the IAA generally does not apply to “the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation,” a term broad enough to include websites.

Not surprisingly, neither the SEC nor any court has yet applied those definitions to a Crowdfunding portal. The best sources of information are no-action letters issued by the SEC to electronic “matching” services and a handful of court decisions. Under these authorities:

  • A portal that merely posts investment opportunities using information provided by the issuer is probably not an investment adviser.
  • A portal that explains why every investor should have a portion of her portfolio in real estate, or in startups, is moving toward investment adviser territory.
  • A portal that advertises its industry experience and its expertise in “vetting” deals is moving toward investment adviser territory.
  • A portal that assigns ratings to investment opportunities or otherwise provides investors with the tools to select one opportunity over another is very close to the line.
  • A portal that seeks to match an investor’s personal investment preferences to opportunities on the site is an investment adviser.
  • A portal that collects money from investors and uses its own discretion in selecting investment opportunities is an investment advisor.

A portal that doesn’t want to register as an investment adviser faces a dilemma: no matter how many disclaimers the portal posts on its site, users might view the portal as an investment adviser anyway. For example, a user might decide to invest $5,000 in every deal listed by Fundrise and Patch of Land, believing she’s creating her own Fundrise and Patch of Land “mutual funds” and leaving it to her “advisers” at the portals to select individual securities. On one hand, you spend every hour of every day developing a brand that’s based on finding great deals for your registered users. On the other hand, the more successful your brand the more you look like an investment adviser.

Why not just bite the bullet and register as an investment adviser? Three primary reasons:

  • Paperwork and Cost. Unsurprisingly, investment advisers are subject to lots of regulation and oversight. It’s nothing like registering as a broker-dealer, but it’s plenty cumbersome.
  • Additional Liability. An investment adviser owes statutory and fiduciary duties to its clients.
  • Disruption of Business Model. A Crowdfunding portal that is also an investment adviser might not be able to operate the way it wants to operate. For example, an investment adviser registered with the SEC generally may not receive compensation in the form of a carried interest. 

I believe the future of Crowdfunding involves pools of assets rather than individual assets. Many portals have already moved in that direction. On FundersClub, for example, investors can choose to invest in funds that select individual securities after the fact, agnostic as to industry, i.e., a Crowdfunded venture capital fund.

Once a portal takes that step – accepting investor dollars and deciding how to invest them – the portal has stepped decisively across the line into investment adviser territory. Ideally you take that step rationally, having decided that the benefits, meaning primarily the ability to attract additional capital, outweigh the costs.

Questions? Let me know.

Why Delaware?

On By crowdfundattnyIn Crowdfunding, Crowdfunding Portals, Delaware, Delaware Crowdfunding1 Comment

Why are most Crowdfunding entities formed in Delaware? Two reasons.

First, Delaware has very good business laws and a very good system for adjudicating business disputes. Here’s what I mean:

  • Delaware’s business laws – and by that I mean the laws governing limited liability companies and corporations – are very flexible. In the hands of a capable corporate lawyer, Delaware’s laws can be used to do just about anything you want to do, i.e., can implement just about any business deal.Delaware_CF State
  • For better or worse, Delaware’s laws are tilted in favor of management. That means those running the show – and those running the show pick where the entity is incorporated – can get more or less what they want. As an example, Delaware allows the manager of a limited liability company to disclaim all fiduciary responsibilities to the members. Most states do not.
  • Delaware has a whole court system devoted to adjudicating disputes among business entities and their owners and managers. In most states, the judge hearing a business dispute in the morning is hearing auto accident cases all afternoon and is probably a former personal injury lawyer herself. First among the country’s business-only courts, Delaware’s Court of Chancery enjoys a deserved reputation for professionalism.

Second, because Delaware entities are used so widely, lawyers across the country are familiar with Delaware law. If two real estate investments are offered on a Crowdfunding portal, one incorporated under Delaware law and the other incorporated under Missouri law, the Delaware company has a head start in attracting investors solely on the basis of familiarity, at least outside Missouri.

There is one important exception. Under Federal Rule 147, an entity raising money through the intrastate Crowdfunding exemption of State X must be incorporated in State X, not in Delaware.

Questions? Let me know.

CFGE Crowdfund Bank And Lending Summit in San Francisco

On By crowdfundattnyIn Crowdfunding, Crowdfunding Portals, Crowdfunding Real Estate, Crowdfunding Speaking Engagements, Entrepreneurs, Equity Crowdfunding, Investing, Investor, JOBS ActLeave a comment

Roderick CFGE

Since Labor Day, I’ve spoken at half a dozen events: for entrepreneurs, for intellectual property lawyers, for finance professionals, for digital marketing groups. This week I’ll be speaking at one of the premier Crowdfunding events in country, the CFGE Crowdfund Banking and Lending Summit on the 16th and 17th in San Francisco.

The conference features some of the leaders in the industry, including:

  • Richard Swart, Director of Research for Innovation in Entrepreneur and Social Finance, Colman Fung Institute for Engineering Leadership at UC Berkeley.
  • Ron Suber, the President of Prosper.
  • Jason Fritton, the Founder and CEO of Patch of Land.
  • Tom Lockard, the Vice President for Real Estate Investment and Institutional Sales of Fundrise.
  • Nikul Patel, the Chief Lending Officer of LendingTree.
  • Jesse Clem, the Co-Founder of LOQUIDITY, LLC.
  • Joy Schoffler, the CEO of Leverage PR.

Whether you’re new to Crowdfunding or an industry veteran, I’d strongly suggest you attend. I’m always amazed how much more there is to learn.

To register, click here. Make sure to use my promo code and receive a 25% discount! Promo code: Roderick

And while you’re there, please stop by and say hello. Crowdfunding and skiing – those are my two favorite topics.

Questions? Let me know.

Rebuilding America, By Jason Fritton, Founder & CEO Of Patch Of Land

On By crowdfundattnyIn Crowdfunding, Crowdfunding Portals, Guest Blog, JOBS Act, Portals, Real Estate, UncategorizedLeave a comment

Statue of Lib CF_PurchasedBy: Jason Fritton, Founder & CEO of Patch of Land

Our headquarters is in Los Angeles, but Patch of Land was really born in Chicago.

Like all American cities, Chicago is a tale of two cities: one where the streets are lined with mansions, tidy row homes, and plush high-rises; and the other where most houses, if you can call them that, have boarded up windows, loose bricks, and rotting wood.

You can’t see those neighborhoods without wanting to help, and if you’re a real estate entrepreneur, as I am, you think there must be a lot of money to be made from all those vacant and abandoned buildings.

I went to foreclosure auctions but found that the market was broken. On one hand, the same handful of ultra-wealthy individuals or companies bid on $10 million properties. On the other hand, nobody bid on the smaller properties in blighted neighborhoods even though they could be had for a pittance, $10,000 or $20,000 apiece. The problem was (and is) that banks wouldn’t touch them, even if the developer had a proven track record. So the properties stayed vacant and abandoned, basically worthless, eyesores in the community.

I had a great idea – Crowdfunding! I’d ask for money from everyone. Not just as charity, although revitalizing neighborhoods would be the goal, but also as good investments for the donors/investors. We would start in Chicago and then move across the country, helping communities along the way.

We had our motto – Building Wealth & Growing Communities – before we knew how we were going to do it.

As it turned out I was a little early. I wanted to advertise my investments to everyone but in securities law terms that would have been “general solicitation,” which was still illegal. To keep my idea alive I found myself in Washington, D.C. lobbying for the JOBS Act, where I learned how political compromise can work. Republicans liked the economic freedom the bill gave to entrepreneurs and individual investors, while Democrats liked the potential for improving neighborhoods and the boost for small business.

Both sides came together and President Obama signed the bill into law on April 5, 2012. Now, without going to jail, I could start improving those neighborhoods.

There is an old African proverb: “If you want to go quickly, go alone.  If you want to go far, go together.” I started building my team piece by piece, knowing a lot of other smart people were getting into the market at the same time. And I’m proud of the team I built, the best in the business as far as I’m concerned. We did our first deal on October 15, 2013 and within six were the leading platform in the country dedicated to real estate debt.

We pre-fund all our deals, meaning we invest our own money before asking for money from anyone else. Unlike some other platforms, we also start paying interest as soon as we take an investor’s money. We are completely transparent. We charge no fees to investors. We offer very fast turnarounds to borrowers and very competitive returns to investors. We do a great job evaluating loans, based on our credit experience to date. We’ve taken big steps toward bridging the gap between the old world of behind-closed-doors capital formation, and the new world of online transparent capital structures.

But they’re just first steps. We and the industry have a long way to go. More than anything, we need a workable Title III or its equivalent. Accredited investors, all eight and a half million of them, make up only a small fraction of American adults. To truly democratize the formation of capital, we need to let everyone into the game.

Less than a year after Title II came into effect the market is exploding, with some very large real estate players getting into the business. To me, that’s just vindication of our business model, proof that the Crowdfunding business is being taken seriously.

I don’t worry much about the competition from those companies because small, nimble companies like Patch of Land enjoy a bunch of advantages:

  • Crowdfunding is a new business. Those of us who have been here from the start know the business inside out.
  • There’s a reason Walmart can’t seriously challenge Amazon. Amazon’s business was built online from the ground up, while Walmart’s entire model, entire way of thinking, is based on bricks and mortar. For more on that, click here.
  • Our business runs on technology, and our technology is second to none. In one seamless, integrated process, we control a project from application to interest-paying loan.
  • Our cost structure is far lower, allowing us to share the savings with both borrowers and investors.
  • There are wide swaths of the American real estate market the big players have never touched and will never touch. We call that market “under-served” or “most of America.” That’s the market Crowdfunding was created to address.

Among the many transactions we’ve complete, our loan to Deborah Smith in Georgia shows what we’re about. Deborah developed a rent-to-own program where veterans with poor credit could qualify for financing from the Veterans’ Administration. Using financing from Patch of Land, she was able to get those veterans in homes they couldn’t afford otherwise. And our investors made money in the propatch of landcess. That’s a long way from solving every problem in the real estate market, but it’s a start.

I’m super optimistic about the future of Patch of Land. If you had told me five years ago that I could be doing what I’m doing today, I’d have thought you were dreaming. Wait until you see what we’ve built five years from now.

Follow Jason Fritton on Twitter: @JasonFritton

Follow Patch of Land on Twitter: @PatchOfLand

 

Our Experience With Regulation A – by Ben Miller, Co-Founder of FundRise

On By crowdfundattnyIn Crowdfunding, Crowdfunding Portals, Crowdfunding Real Estate, Guest Blog, JOBS Act, Regulation ALeave a comment

To improve the user experience, I am inviting guest bloggers. The first is Ben Miller, a Co-Founder of Fundrise, who explains how he and his brother Dan invented Crowdfunding through Regulation A.

Please let me know if you would like to post. I’m looking for content like Ben’s – interesting, informative, educational.

-MARK RODERICK

____________________________________________________________________________________

By: Ben Miller, Co-Founder of Fundrise.

My brother Dan and I were in the real estate business for a long time, developing commercial and residential projects in the Washington, D.C. area, before we thought about crowdfunding. We got some of our capital from the same place many real estate developers get their capital: from investment funds in New York or even outside of the country.

Most of them had little connection to the places we were building and often had never even heard of the neighborhood. On the other hand, our friends and neighbors, people with real connection to the projects, couldn’t invest with us.

fundriseWe started to imagine a world where everyone could invest in high-quality real estate deals, which were then limited to professional investors. We thought about ordinary people investing in their own communities, creating a win-win for the community and business owners. Like every other developer, we’ve had our share of battles with local zoning agencies. We imagined how that process might change if actual investors from the community showed up at council meetings to support the project.

This was before crowdfunding or the JOBS Act were on the table, and every lawyer we spoke to (and we spoke to plenty) told us that our idea was impossible.

Finally we discovered SEC Regulation A. Although Regulation A had been around since 1936, before we came along it had been used very rarely, which probably explains why the lawyers hadn’t heard about it. In all of 2012 fewer than a dozen companies had used Regulation A to raise capital across the whole country, as compared to more than 7,000 Regulation D offerings.

We soon found out why. Although Regulation A allows you to raise money from anybody, including from non-accredited investors, first you have to file a disclosure document with the SEC and with the state securities regulators in any state where you offer the security, and get the regulators to approve your offering. Regulation A is nothing like the new Crowdfunding under SEC Rule 506(c), which is simple and streamlined by comparison.

Once we figured out how to file the disclosure document, which is really like a mini registration statement, we learned that neither the SEC nor the state regulators had ever seen a real estate development project offered under Regulation A. We spent hundreds of hours and way too much in legal fees working through all of the issues. We were literally doing something that had never been done in the history of the U.S. capital markets, and at the same time paving the way for everyone else.

After lots of work, lots of frustration, and lots of conversations with regulators, we succeeded. Our Regulation A filing was approved and we raised $325,000 for the project. I won’t even tell you how much it cost to raise that $325,000, but we were okay with it because we saw the experience then, and still do, as an investment in our future.

We have completed three Regulation A offerings since then. Each time we’ve gotten better and faster, not to mention that the regulators have learned along with us.

Here’s what it took to complete our most recent Regulation A offering:

reg a breakdown

Our most recent filing:

fedex

Fundrise has branched out since those early days. As the leading real estate portal in the world we offer not only Regulation A projects but Rule 506(c) investments under the JOBS Act. And we’re very excited about the new Regulation A+. Regulation A+ improves on Regulation A by allowing us to raise up to $50 million of equity from non-accredited investors (subject to a limitation on how much each person can invest) and further streamline the process by filing only with the SEC, and not with state securities regulators. Fundrise has always been a pioneer, and we expect to pioneer the possibilities of Regulation A+ as well as soon as it becomes available.

Whatever the future holds for Fundrise, and we believe our future is unlimited, we’ll always remember that Regulation A allowed us to open the door into the world of crowdfunding and give unaccredited investors the chance to invest in real estate for the first time in history.

Follow @BenMillerise and @Fundrise on Twitter.

 

A Solution For Title III?

On By crowdfundattnyIn Crowdfunding, Crowdfunding Portals, JOBS Act, Title IIILeave a comment

Lots of smart people attended the CFGE Crowdfund Real Estate Summit in Austin last week. On Thursday, there was a wonderful and heated discussion about Title III of the JOBS Act.

Some thought that regular, non-accredited investors should be allowed to invest in whatever they want, whenever they want, without the protection of the government. Some of the more opinionated think that the word “protection” in the preceding sentence should be in quotation marks, or even preceded by the phrase “so-called.”

Title III tries to balance two competing interests: on one hand, giving ordinary people the chance to invest in private deals; and on the other hand trying to protect ordinary people from the risks inherent in private deals.

It does so using the tools of traditional securities laws – namely, disclosure, transparency, reporting, and regulation. These were the tools introduced back in the 1930s at the height of the Great Depression. The Securities Act of 1933 and the Securities and Exchange Act of 1934 cleaned up the cesspool that Wall Street and become, and that approach has served the country extremely well over the last 80 years.

But we’re finding that it doesn’t quite work in Title III. Those traditional tools, which have worked so well for so long, are too expensive, so expensive that they defeat the purpose of the JOBS Act. Specifically, the traditional tools make capital so expensive that entrepreneurs can’t afford it.

Over lunch I thought of a different approach, one that is more attuned to the times.

Suppose a deal sponsor is raising capital for Project X. I propose that regular, non-accredited investors should be allowed to invest under the following conditions:

  • Accredited investors unrelated to the sponsor invest at least 25% of the capital for the project.
  • Each non-accredited investor is limited to 10% of income or net worth.

That’s it. No cumbersome reporting or regulation.

Why does this work? The whole point of Title II is that accredited investors are smart and sophisticated enough to protect themselves. If accredited investors are taking 25% of the deal, it means that smart, sophisticated investors have decided that it’s an investable deal. Or to put it in modern terms, the Crowd, through accredited investors, have validated the deal. And by limiting the amount of the investment to 10% – borrowing a rule from proposed Regulation A+ – we ensure that regular investors don’t over-invest.

This is a modern solution to a modern problem. It balances investor participation with investor protection through a mechanism that relies on the Crowd, not the government.

I’m interested to hear what others think.

Questions? Let me know.

Marc Andreessen On The Future Of Title II Crowdfunding Portals (Sort Of)

On By crowdfundattnyIn Crowdfunding, Crowdfunding Articles, Crowdfunding Portals, New York Times, Title II CrowdfundingLeave a comment

On the Technology page of yesterday’s New York Times, Nick Bilton reports on an interview with famed tech guru Marc Andreessen.

Mr. Bilton asks Mr. Andreesen, can other cities compete with Silicon Valley?

“In Mr. Andreessen’s view, there shouldn’t be 50 Silicon Valleys. Instead, there should be 50 different kinds of Silicon Valley. For example, there could be Biotech Valley, a Stem Cell Valley, a   3-D Printing Valley or a Drone Valley.”

A different “Valley,” each specializing in a different vertical, with its own ecosystem of entrepreneurs, favorite tweetinvestors, and experts. I believe Title II Crowdfunding portals, now in their infancy, will develop in exactly the same way.

Carve out a niche vertical. Attract investors looking to place bets on the top companies in that vertical. Find the companies. Create the ecosystem.

Mr. Andreessen was talking about real cities, not virtual cities. But in my opinion the point is exactly the same.