#TOKEPORTAL.HU BLOG
Crowdfunding against the crisis!
– opportunities for residents and policymakers –
Similarly to the financial crisis of 2008, the spread of the coronavirus and the consecutive measures pose a great challenge to the economy, particularly affecting startups as well as small and medium-sized companies. SMEs are essential providers of jobs and economic growth, therefore it is crucial to prevent them from going bankrupt on a large scale. During the past few days, special measures have been introduced around the globe to fuel the economy.
In the United States, the Federal Reserve decided to lower the target range for federal funds to 0.00-0.25%, thus providing companies with cheap credit. The National Bank of Hungary intends to help companies by imposing moratorium on business credits as well as providing the opportunity to restructure these loans. The EBRD and the EU have announced special programs, too.
Economic downturn poses a serious problem to innovative small and medium-sized companies that cannot access bank finance or seek for more flexible solutions. During such periods, institutional investors postpone their investments, which makes it very difficult for companies to raise funds. Crowdfunding can provide a solution to this problem, specializing in online campaigns, which offer investment opportunities to retail investors through the platforms. The role of such campaigns will probably become even more important under the current situation, since the platforms arrange the complete processes of registration, identification and investment online, very quickly and efficiently.
Crowdfunding is an effective means of combatting the crisis:
- We have learnt the lessons during the financial crisis of 2008 (which resulted in the loss of 10 million jobs in the US alone): when the financial system collapses, then SMEs need to attract residential funds quickly and efficiently. To this aim, the JOBS Act was adopted in 2012, which facilitated the simple, predictable, platform-based fundraising of small and medium-sized SMEs, i.e. crowdfunding.
- The knowledge on investments has significantly improved since then: investors plan investing into startups and SMEs for 4-6 years – as opposed to stock market speculations. Therefore investors are expected to do so even during a crisis.
- As opposed to regulated markets and other types of investments (including angel investment or venture capital), the opportunity to invest small amounts reduces risks and provides access to participate in future success stories.
- The identification and investment is arranged through simple online processes; all one has to have is internet connection.
- Dormant capital is injected into the economy, investing small amounts does not force the investor to reallocate, thus there is no competition and the risks are reduced. This can improve financial competitiveness and in the long term increase the number of companies going public.
- There might be a multiplier effect: retail investors can become co-investors of institutional players through the platform.
The USA seems to be the most innovative in solving the crisis, just like when adopting the JOBS Act, which constitutes an important milestone in the history of crowdfunding. Congressman Patrick McHenry, the Republican Leader of the House Financial Services Committee introduced three bills on 12th March with the aim to combat the economic and public health impact of coronavirus. One of the bills proposes to modify the regulation on crowdfunding (Crowdfunding to Combat the Coronavirus Act).
The bill eliminates the offering ceilings in Reg A, Reg A+ and Reg CF (Regulation Crowdfunding) for startups and small businesses working to combat COVID-19. The bill provides support for job creators while encouraging medical innovation that could save lives. Additionally, it creates a $1 billion prize for creating a COVID-19 vaccine that must be affordable and widely available. Any potential vaccine must be determined to cut the mortality rate by over 50%, according to the language of the bill.
Another bill proposed by McHenry allows broader access to capital for companies operating in any sector. The spread of the virus poses serious threat to many small businesses, therefore the Relief for Small Businesses Through Micro-Offerings Act creates new exemptions for offerings up to $250,000.
Prior to McHenry’s proposals, at the beginning of March the Securities and Exchange Commission (SEC) proposed improvements to security exemptions. Among the proposed changes, the SEC seeks to increase Reg CF from its current $1.07 million funding cap to $5 million and Reg A+ to $75 million, thus significantly expanding the business opportunities of companies.
Tokeportal.hu helps companies that seek investment:
- Try out investment! View the Beachegg campaign and indicate interest. You can invest as little as HUF 19,400.
- If you like the process and you would like to launch a campaign for your company, contact us at hello@tokeportal.com!
- We will assess your company during an online discussion and you may also receive legal advice. In case you have received investment before or you have already entered the market with your product, the preparations might be shorter (2-3 weeks).
- We will help you prepare the investment opportunity and seek prospective investors while validating your business plan.
- In the meantime the campaign documentation is prepared: the onepager, the investor deck, the financial plan and the introductory video. Strengthen your online presence even during the preparations, so that you can start communications as soon as possible.
- Contact us now!
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