Can the Concept of Equity Crowdfunding Transform Investment Operations?Written by Mike Despo on Jun 5, 2018
Most of us have asked at one point or another, ‘What if I had invested in Facebook, Amazon, or Apple back when it was just a start up?” Well for the most part, unless you were an accredited investor or close friends with Zuckerberg, Bezos, or Jobs you didn’t have access before those companies went public. However, on May 16th, 2016, Title III of the Jobs Act became legal allowing ordinary people (aka non-accredited investors) to participate in equity crowdfunding. This law opened the door for everyone, not just the wealthy, to invest in startups, granting the public an opportunity to decide what is a good idea.
You are probably wondering how this ties back to evolving your operations—I am getting there, but allow me to explain a tad more first. You have probably heard of the TV show Shark Tank where a group of high profile, affluent personalities assess a set of business pitches before determining whether to invest their own money in exchange for equity. Well now because of the aforementioned Jobs Act and with new platforms like Wefunder, non-accredited investors can also be like the sharks and review companies offering up equity to investors. Each startup that raises funds on a platform like Wefunder provides a pitch deck outlining their value proposition, a short 1-2 minute video, a Q&A section where you can interact with the founder, along with other relevant information to help a potential investor make an informed choice. The beauty with this model is that there is wisdom in the crowd. While the raise round is open, you, as a potential investor, can see the number of other investors who have pledged into the round along with the net total dollars pledged. Those startups that are to slow to raise funding may raise a red flag while those that are ‘hot’ and are on pace to raise funding in a week or two can signal a better investment opportunity.
Now it’s time to talk operations. Think of each of these companies looking to raise capital as nothing more than transformative ideas. In investment operations, the management teams often place the entire burden on themselves to provide ideas and strategic direction for their organization. Should this be the case? In my view, the best management teams should be enablers who focus on facilitating idea generation across all levels of the organization. That is where the true value can be unlocked and where the concept of equity crowdfunding can be applied to our industry.
Imagine rolling out a similar platform like Wefunder within your firm. Every employee, whether at the executive or staff level is given an opportunity to pitch their business idea(s) on the platform. Ideas can range from redesigning an operational process, establishing a new training process, review and selection of a new application, etc. Each pitch is visible for the entire company, division, or team (depending on relevance) to review and determine whether it warrants investment. Employees can invest by using ‘company currency’—a made up digital currency to be spent by employees on the platform. Each year a set amount of this ‘company currency’ is delegated out across the organization with top performers receiving a bigger share and so on down the line. Those ideas/projects that raise the most are the projects the organization takes on.
The benefit to this concept is that no matter how large or small the idea is, it needs to be pitched in a way that displays clear value, otherwise, the employees will not invest their allotted ‘company currency’. Internal crowdfunding democratizes the direction of the company and by default, creates buy-in on those initiatives a firm decides to move forward with. To incentivize participation, employees whose ideas/projects get funded or green-lighted would receive a monetary bonus (real dollars) and an opportunity to take on a leadership role to execute the idea. That’s a win for the organization as they move in a direction in line with employee expectations and an opportunity for an employee or employees to stand behind their idea and lead the charge should it get backed.
Empowering people to get behind a common goal that they believe in is the essence behind equity crowdfunding. On many of our projects, we see brilliant transformation ideas hit roadblocks during implementation or transition because employees don’t see or believe in their value. Whether or not a crowdfunding model works, firms looking to make transformative changes to their technology or operations should consider how to source ideas from all levels of the organization. As Steve Jobs once said, ‘It doesn't make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do.”
Keep the ideas flowing and then empower your folks to make it happen. In the end everyone wins.