Opinions expressed by Digital Journal contributors are their own.
An enormous shift has taken place in capital markets in recent years after the JOBS Act of 2012 made crowdfunding more accessible to scores of entrepreneurs and small businesses. That shift has become even more significant as more traditional forms of venture capital have become increasingly challenging for early stage companies to secure, causing them to seek out alternative sources of capital.
Crowdfunding through Reg CF and Reg A offerings has exploded in popularity thanks to digital platforms that help facilitate the process. One of the most prominent crowdfunding platforms, Dalmore Group, has led innovation in the industry to make the journey more accessible to founders and investors. Dalmore’s chairman, Etan Butler, provided insight into how crowdfunding could reshape the future of capital markets and Dalmore’s role making those shifts a reality.
What are some of the key benefits for issuers on the Dalmore platform that are allowing you to outperform other crowdfunding platforms?
Etan Butler: Dalmore has close to twenty years in business as a FINRA-registered broker dealer and an investment bank. Over that period of time, we have built tremendous infrastructure. We have remained innovative and opportunistic, always looking to skate towards the puck of where opportunity presents itself through regulatory change and improvement in technology, marketing and promotion that benefit issuers in today’s modern age.
That value from a compliance perspective, which is critical to an offering, as well as the technology culture that we have, is cumulative over our twenty years of experience and new issuers benefit from a lot of what we have learned along the way with other successful and unsuccessful clients from the past. Our issuers benefit from the continuous changes that we implement to constantly reduce friction around the many factors that go into a capital raise.
Rather than simply going out and selling an offering on behalf of a client in the mold of a traditional broker-dealer (most broker-dealers have a low success rate), our approach is more consultative where we say, ‘Okay, let’s look at your tech stack and how that may be impacting the success and the experience of your investors. Let’s also look at the exemptions you’re using and how effective those are. We’ll look at the marketing and the ability to track that marketing to see what you’re doing and who you’re looking to reach. We can look to perhaps expand the scope of who you’re able to market your products to through the use of other exemptions which we have compliance approved workflows.’
We can tell you how much it costs, the pros and cons, the timing, all in a menu of strategic options along with case studies of what others have done successfully.
Our intention is to educate you and provide you with what we believe are the best possible tools. I think that affects our reputation and that causes many attorneys that have worked with us to continuously refer their clients to us.
The proof is in the pudding when it comes to data as far as how much has been raised with more than $1 billion raised across 1,000-plus companies and over one million investments made.
What do you think is driving the intense interest from mainstream retail investors in participating in Reg A and CF offerings right now?
Etan: The private markets dwarf the public markets as far as size. However, historically it’s been very challenging for the everyday investor to have access, analyze, and be able to transact in private securities, even though for the majority of many super wealthy individuals in the US, their wealth has been generated through investing in private securities or creating their own through entrepreneurship. The problem is there’s not enough order in place for the average retail investor to access this, and we’re working to bring order to the private markets.
We’re instrumental in that as far as our footprint in the space as a whole we’re getting better at helping guide issuers to prepare for that opportunity to present their opportunities to investors. You need better technology because most investors are seeing these opportunities on their iPhones. It’s not like investors are opening up the newspaper like they might with public equities and reading the private market exchange in the morning and seeing how their positions performed in their brokerage account. But really for the first time at this level, retail investors can participate in a more easy way.
Do you think that crowdfunding, Reg CF, Reg A funding will remain raising money through those exemptions will be more robust than traditional fundraising in the current economic climate for 2024?
Etan: Yes, we have seen that evidence over the last few years with the slowdown in traditional venture capital and a stabilization or even slight increase in some cases quarter by quarter in crowdfunding and Reg A.
I believe that we’re going to see a massive increase in the utilization of these exemptions by companies to raise money online. Reg CF, which allows companies to raise up to $5 million in pretty much any structure, equity or debt, from anyone on the internet over the age 18 is something I think more than the 1,500 companies a year that have raised money through these exemptions out of the 30 million private companies total that exist in the US have a need for.
I’m bullish that through education and simplicity, much of which I’m taking responsibility for undertaking at Dalmore, there is an opportunity to bring better awareness to these relatively new exemptions. That’s an education game.
Issuers are learning about better ways to reach investors, and investors are seeing more opportunities and hopefully getting smarter, and we at Dalmore are behind the scenes trying to move the industry forward through technology, awareness and exposure.
Dalmore fractionalized the ownership of Kentucky Derby winning course, Mage. Do you believe that fractionalization will become a more prominent trend in sports and collectibles?
Etan: In fact, this was our second Kentucky Derby winning horse that was fractionalized on the Dalmore platform. As amazing as that sounds, that almost answers the question. In such a short period of time, fans got to benefit and enjoy equity participation in a Kentucky Derby winner twice.
It is my personal belief that ultimately all high value assets will become fractionalized and made available to retail investors in the future. The reason is because it is a benefit to all parties involved. From the asset holder’s perspective, it’s a path to liquidity for many alternative assets that often have illiquid markets such as art and collectibles.
There is also enormous benefit to investors getting democratized access to owning fractional interest in these assets. Historically, investing in large real estate deals or alternative assets such as art, horses, etc was like an old boys club. Very few investors had access and even fewer met the minimum capital requirements. It was very cumbersome. Today, that is changing as evidenced by the examples of all the different industries that are fractionalizing and setting up platforms that bring the opportunity to invest in these assets, and ultimately, through platforms like Dalmore, even have the ability to access secondary trading of those assets.
