By David Drake, The Soho Loft
The year 2014 will be full of change and innovation in the finance and investing landscape as many newcomers will enter the game of finance.
Here are some of the changes and trends that we see for the year 2014:
1. JOBS Act
SEC will try to make it clear for investors whether an IT platform offering 506(c) securities is acting like a VC Fund, a bulletin board or a broker-dealer. There is some confusion on this now, but that will soon be clear.
There will be attrition in the pending Funding Portal community as many aspiring funding portals will begin to pursue Regulation D 506 offerings as Title III crowdfunding equity are now 18 months delayed. Several will stall and leave the space as they won’t have the strength or financial standing to stay in business until the final rule of adoption from the SEC and FINRA takes place.
The surviving IT funding portals will either apply to become brokers or will partner with them so they may have more earning pipelines. One reason for doing this will be that commissions are allowed for middlemen.
2. Hedge Funds
There will be more differentiated Hedge Fund businesses. We will see larger concentration of hedge funds along with massive growth of startups. The regulation on Hedge Funds will become rougher and consequently more and more hedge fund managers have converted to become less restricted Registered Investment Advisory managing separate accounts. These will become more accessible and will reach more investors. The annual management fee will shrink.
3. Family Offices
The single family office network will grow as new wealth enters the market seeking more education on family office processes. These will become more sophisticated investors with wider range of investment spectrum. Family office will search for more direct investment opportunities. Family offices will become the leading foot seeder for variety of investment styles.
4. Private Equity
The General Solicitation Ban was lifted on private offerings which includes private equity. It is a very important and powerful change since 1933. Its implication is that private equity firms can advertise and promote their securities to a very large investor base in a very cost effective manner through social media and internet marketing.
Private equity is already taking advantage of this as we help them market to Qualified Investment Buyers (QIBs). By that we mean sophisticated buyers with assets amounting to $1 million or more. To enjoy the privileges of being a QIB, a natural person needs to invest at least $500,000, whereas an institution (i.e., bank, or savings and loans thrift) must have $25 million. For broker dealers to qualify as a QIB, they must have $10 million in discretionary trade assets.
With financial services community embracing this new paradigm the unregistered securities offerings will greatly surpass the newly registered offerings in the US in 2014.
5. Possible alliance with Silicon Valley
Wall Street will be making a strategic partnership with the Silicon Valley to harness the potential provided by the powerful and efficient Web 3.0 and Social Media. This will disrupt traditional capital formation and distribution.
6. Crowdfunding for equity
Crowdfunding for equity will be operational by Christmas 2014. SEC will legalize it by September 2014.
European brands in equity Symbid, Seedrs, Funded By Me, and Crowd Cube will expand Europe-wise in 2014. Dozens of European crowdfunding firms will expand to the US but won’t be able to make much of an impact there. IBM and other corporations will start using crowdfunding for internal innovation and development. About 200 firms will break a million dollar crowdfunding campaigns in 2014.
Crowdfunding for equity will become a US law this Fall 2014 but it won’t be the leading driver for capital formation for small businesses – other morphed laws will be doing that. US firms will grow larger and do faster than their counterparts abroad.
The balance of angel networks, venture capitals, broker-dealers with regards to crowdfunding will start showing their trends and hundreds of firms will get funding to take the lead in this space. Kickstarter will break a billion in kickstarter campaigns. Industry will reach $10 billion.
Massolution’s estimate of $5.1 billion for 2013 is going to be severely off. Lendingclub themselves broke $2.1 billion in debt crowdfunding and was on a $500 million trajectory when the report was conducted in mid-2012. Something we reported in our article on Dec 2012 in Forbes.com.
David Drake is an early-stage equity expert and the founder and chairman ofLDJ Capital, a New York City private equity advisory firm, andThe Soho Loft - The Voice of Capital Formation – a global financial media company with divisions in Corporate Communications, Publishing and Expos. You can reach him directly at David@LDJCapital.com.