The Securities & Exchange Commission made a move in late 2015 that sets the stage for what I see as a big idea for 2016 and beyond for the credit union industry and the communities we serve.
The SEC approved a new rule that allows credit unions to maintain and transmit investor funds in equity crowdfunding transactions. Actually, the commissioners clarified an original rule — part of the Jump Start Our Businesses (JOBS) Act of 2012 — that had left out credit unions as depository institutions for bringing together small investors and the small businesses they would like to fund.
Credit unions can now participate, and there are some compelling reasons — I’ve outlined four below — to consider whether it’s right for you. Callahan & Associates thinks it’s worth exploring. That’s why we’ve partnered with an online equity marketplace that is piloting a program with a dozen credit unions in the second quarter of 2016.
Watch It Now: Callahan managing partner Jon Jeffreys and GrowthFountain CEO Ken Staut discuss the credit union opportunity in crowdfunding in this informational webinar.
4 Reasons To Consider Crowdfunding
No. 1: Online crowdfunding allows small investors to help entrepreneurs launch and grow their businesses. For some time now, small businesses have been the largest creator of new jobs in the United States — these are coffee shops, shade-tree mechanics, software developers, and other folks with valuable skills and big dreams yet limited-to-no access to the equity they need to grow.
On the other side are potential long-term investors who are as interested in helping their neighbors build prosperous businesses as they are in making a quick buck. These investors present a new opportunity for credit unions to add another piece to the virtuous cycle of opportunity and service that the movement has presented since its earliest days.
No. 2: Credit unions can earn revenue. Online marketplaces, such as our partner GrowthFountain, charge a fee to manage the marketplace and approve qualified investors and companies. Credit unions can earn a portion of that fee by funneling potential participants to the marketplace and serving as a third party that maintains and transmits investor funds.
Learn more: Take a deeper dive into crowdfunding in this CreditUnions.com article "Taking Money From Strangers."
No. 3: Partnering with a crowdfunding platform is a great way to build deeper relationships with your community’s small businesses. After a business has secured the equity it needs to grow, it will be looking for a partner that offers expanded business services such as credit cards, cash management, payroll, and more — services credit unions can offer and scale to the needs of a growing business.
No. 4: Credit unions face unceasing pressure to prove their relevance in a rapidly changing marketplace. Using a white-labeled service that manages the complexities of equity funding, while focusing on the credit union’s relationship with its member-owners, is a powerful tool that demonstrates a credit union is in touch with its community.
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Equity crowdfunding enables local investors to stake a claim to the economic future of their own community, yet the implications extend beyond a city’s limits. Online crowdfunding is expected to grow to $34 billion annually by the end of 2016, surpassing venture capital investing, according to 2015CF: The Crowdfunding Industry Report.
Equity crowdfunding enables local investors to stake a claim to the economic future of their own community, yet the implications extend beyond a city’s limits.
These marketplaces are ideal vehicles to encourage local investment and a great way to deepen relationships with economic bodies such as Chambers of Commerce. But they also have a larger reach for those investors who want to place their equity bets with ambitious startups and entrepreneurs around the country.
Investing involves risk, but so does doing nothing. If you’d like to know more about Callahan’s partnership with GrowthFountain and our investments in the future, please contact me at JJeffreys@callahan.com.