IndyBar: When Crowdfunding Works Best

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By Andrew J. Thompson, Thompson Law Office LLC

thompson-andrew-mug Thompson

This article originally appeared on the IndyBar Business Law Section webpage. Check out even more news and resources from the section at

I have written previously about how “crowdfunding” can bear a mistaken identity. This is often a serious error from the standpoint of the investors that may be excluded, the investment opportunities that can be missed, and the unintended consequences an issuer may face with regulatory authorities who oversee the unveiling of crowdfunding deals as they come to market.

One way to see both the correct view of crowdfunding and it usefulness in the investment markets is to demonstrate how and when it’s successful.

At the highest level, I want to suggest that investment crowdfunding today has its best chance for success in: (1) real estate placements, and (2) in second round deals that have been successful in attracting venture capital or angel investment already in moving their capital advancement forward.

Why is this true? Two reasons: first, the issuers can generally count on accredited investors for a high enough share of the overall capital raise to ensure their ultimate success (usually at least 85 percent of the total placement), and second, the “crowd” is vital to filling the remaining funding gap to complete the overall raise.

For issuers, advisors and investors alike, this is not so easily understood. Who really cares where the money comes from? Isn’t it easier to raise the money in a traditional Regulation D offering format strictly from accredited investors?

But when advisors pass on the traditional answers that we don’t really care where the money is coming from and that it is so much easier to raise money strictly from accredited investors, many, many fundable deals are left on the table instead of going forward with a successful raise.

Here’s an example of this can happen.

A developer needed to raise $3.2 million in equity to fund a local building project. The bank debt financing on the project was conditioned on raising that much equity. The developer had one offer from a sole investor to buy out his development rights in the project for around $2,000,000, which initially seemed attractive, but fell through when the investor learned the changes he wanted to make to the project would take months and several hundred thousand dollars to achieve.

Back at the drawing board, the developer then considered crowdfunding more seriously. But their advisors adamantly steered them away. Too risky, too costly, and too uncertain, they were told. They conceded that if they could raise something on the order of $2.5 million from their investors, they could raise the additional $500,000 or so from the same pool of investors with no problem. Eighteen months later, they still came up short.

What was missing? The truth is simple. There are literally thousands of investors waiting to be invited to participate in a deal like they had waiting. With an internal rate of return of close to 20 percent in a market that had nearly zero vacancy, and little downside, who wouldn’t want in on the deal?

And what did the developer have to give up to extend the offering to these investors? Truly, nothing. The share of equity they would yield would be exactly the same as if one investor participated with them. But that isn’t how it works.

If one investor puts up all the capital, he wants control. If you have multiple investors, it may as well be 200 as two. And in getting to 200, you expand your opportunities exponentially if you allow all investors the chance to participate, and not just those certified as “accredited.”

I am convinced that there are many, many deals sitting that can readily be moved from the “almost funded, but failing” category, to easy success, if they open up to a crowdfunding issuance. I may be wrong, but over time the empirical evidence will prove one way or another.

In the next installment in this series, I will examine cases in the United States that have succeeded and some that crowdfunding may not have helped. Hopefully, this will make it easier for the reader to evaluate whether crowdfunding is the option for him or her.•


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  1. The voices of the prophets are more on blogs than subway walls these days, Dawn. Here is the voice of one calling out in the wilderness ... against a corrupted judiciary ... that remains corrupt a decade and a half later ... due to, so sadly, the acquiescence of good judges unwilling to shake the forest ... for fear that is not faith ..

  2. So I purchased a vehicle cash from the lot on West Washington in Feb 2017. Since then I found it the vehicle had been declared a total loss and had sat in a salvage yard due to fire. My title does not show any of that. I also have had to put thousands of dollars into repairs because it was not a solid vehicle like they stated. I need to find out how to contact the lawyers on this lawsuit.

  3. It really doesn't matter what the law IS, if law enforcement refuses to take reports (or take them seriously), if courts refuse to allow unrepresented parties to speak (especially in Small Claims, which is supposedly "informal"). It doesn't matter what the law IS, if constituents are unable to make effective contact or receive any meaningful response from their representatives. Two of our pets were unnecessarily killed; court records reflect that I "abandoned" them. Not so; when I was denied one of them (and my possessions, which by court order I was supposed to be able to remove), I went directly to the court. And earlier, when I tried to have the DV PO extended (it expired while the subject was on probation for violating it), the court denied any extension. The result? Same problems, less than eight hours after expiration. Ironic that the county sheriff was charged (and later pleaded to) with intimidation, but none of his officers seemed interested or capable of taking such a report from a private citizen. When I learned from one officer what I needed to do, I forwarded audio and transcript of one occurrence and my call to law enforcement (before the statute of limitations expired) to the prosecutor's office. I didn't even receive an acknowledgement. Earlier, I'd gone in to the prosecutor's office and been told that the officer's (written) report didn't match what I said occurred. Since I had the audio, I can only say that I have very little faith in Indiana government or law enforcement.

  4. One can only wonder whether Mr. Kimmel was paid for his work by Mr. Burgh ... or whether that bill fell to the citizens of Indiana, many of whom cannot afford attorneys for important matters. It really doesn't take a judge(s) to know that "pavement" can be considered a deadly weapon. It only takes a brain and some education or thought. I'm glad to see the conviction was upheld although sorry to see that the asphalt could even be considered "an issue".

  5. In response to bryanjbrown: thank you for your comment. I am familiar with Paul Ogden (and applaud his assistance to Shirley Justice) and have read of Gary Welsh's (strange) death (and have visited his blog on many occasions). I am not familiar with you (yet). I lived in Kosciusko county, where the sheriff was just removed after pleading in what seems a very "sweetheart" deal. Unfortunately, something NEEDS to change since the attorneys won't (en masse) stand up for ethics (rather making a show to please the "rules" and apparently the judges). I read that many attorneys are underemployed. Seems wisdom would be to cull the herd and get rid of the rotting apples in practice and on the bench, for everyone's sake as well as justice. I'd like to file an attorney complaint, but I have little faith in anything (other than the most flagrant and obvious) resulting in action. My own belief is that if this was medicine, there'd be maimed and injured all over and the carnage caused by "the profession" would be difficult to hide. One can dream ... meanwhile, back to figuring out to file a pro se "motion to dismiss" as well as another court required paper that Indiana is so fond of providing NO resources for (unlike many other states, who don't automatically assume that citizens involved in the court process are scumbags) so that maybe I can get the family law attorney - whose work left me with no settlement, no possessions and resulted in the death of two pets (etc ad nauseum) - to stop abusing the proceedings supplemental and small claims rules and using it as a vehicle for harassment and apparently, amusement.