Crowdfunding platforms can be used to support research & development, transfer technology, protect IP, build co-working spaces and finance incubators and accelerators to launch new startups
By Robert Hoskins
Austin, Texas – The purpose of this equity crowdfunding article is to encourage universities and colleges to begin thinking about how schools and students might benefit from:
The Need to Build a Crowdfunding Ecosystem
There is a new generation of “Millennials” that do not want to go to college due to the poor economy and because they do not want to start their life as young adults by incurring $50,000 or more in college loan debt. And there is a growing concern for many students that there may not be a job waiting for them when they finally graduate.
But what if there was a way to attract more students by convincing them that they could work their way through college by researching, planning and then launching their own business while earning their college degree? This would allow some certainty about their career path and teach students how to put a lot more money in their pockets than working for a large corporation that will stick them in a cubicle for the rest of their life.
For this reason, “Entrepreneurship Centers” are becoming a huge draw for students who do not want to work for a living, but instead want to live for working. That means learning how to build new startups from the ground up. Entrepreneurship Centers usually start with a co-working space, then adds a business incubator with mentors to guide students through the startup process and when budget permits, accelerators are created to help students raise money from angel investors, accredited investors and sometimes venture capitalists.
Co-Working Spaces for Startup Companies
The biggest challenge for incubators and accelerators are the costs associated with building a 25,000 sq. ft. co-working space, paying mentors salaries and finding experienced executives with great track records that are willing to share their wisdom and industry experience with students. There is also resistance from departing from the “old school” way of transferring technology from a university Research & Development laboratory, protecting the intellectual property and then utilizing a licensing or royalty revenue model to realize short-term deals to provide a revenue for the college or university.
JOBS Act: Nationwide Equity Crowdfunding
Enter the 2012 JOBS Act, General Solicitation and a new Equity Crowdfunding alternative financing tool that can help startups raise seed investment capital to startup new businesses. While the SEC and NASAA seems hell bent on preventing the national guidelines from ever being released (they are three years past the official deadline mandated by President and the United States Congress), approximately 14 states such as Texas, Michigan, and Georgia have passed their own Intrastate Equity Crowdfunding Exemptions. Add to that another 15 states have a Crowdfunding Exemption in progress.
Map of United States that have approved Intrastate Equity Crowdfunding Exemptions
Intrastate Equity Crowdfunding Exemption
In states where intrastate equity crowdfunding is legal, any trade school, college or university can build an equity crowdfunding platform and use it to begin fundraising campaigns to raise money, not only from Angel Investors and Accredited Investors, but also from the general public who are non-accredited investors.
This means anyone can take a brilliant idea, create a business plan and investor deck to support the business case, build an online equity crowdfunding profile and then use marketing campaigns to advertise the deal to millions of potential investors. Like any e-commerce site, Investors can then visit the equity crowdfunding sites to shop for deals by minimum investment amount, by products or services or by vertical business segment to find deals they want to invest in.
This means that a college or university can build an equity crowdfunding site and use it to raise money for every one of its R&D programs and streamline the entire technology transfer process so that promising technology can be transformed into startups businesses. The school collects a certain percentage from each crowdfunding campaign called a platform commission fee. For a $1 million raise and 10% platform commission fee, a college could collect a $100,000 fee from each campaign. This money could be used to fund co-working spaces, incubators, accelerators and Entrepreneurship Centers.
Creating Equity Crowdfunding Investment Syndicates
By the SEC’s securities law, a crowdfunding platform’s management team or employees cannot invest in equity campaign hosted on its own site unless they are registered broker dealer with the SEC. But a popular trend that is growing is building a college or university equity crowdfunding investment syndicate. An investment syndicate is usually led by one or more Super Angel Investors, who are seasoned veterans that have been investing in startups for 20 to 30 years and completely understanding the process of vetting deals with due diligence and understand the real risks of investing in startup companies.
Novice accredited investors with little investment experience join the investment syndicate so that they can follow or invest along side the Super Angel Investors. In addition, where it is legal, investment syndicates will pool a large pool of non-accredited investors together, who make small investments, into a single LLC and then invest the group’s money similar to how a venture capitalist invests money on the behalf of others.
Adopting an Equity Crowdfunding Ecosystem
For colleges and universities that adopt an equity crowdfunding business model might, it might completely change the way a school recruits, raises money, builds relationships with alumni and earns revenue by seeking long-term equity stakes in their students startups versus short-term licensing and royalty agreements.
Launching an equity crowdfunding platform would not just increase a school’s earning potential, but they might dramatically change the manner in which that Millennials are taught. Instead of just course work, students would be taught at an early age to begin to engage with the world around them and plot a course for their own future destiny rather than relying on fate. Some Millennials might reject the idea of going to college, but the lure of becoming a successful entrepreneur and launching their own business while earning a college education has the potential to create one of the most vibrant and thriving economies the world has ever seen.
Even students that do not start up their own companies have an outstanding chance to benefit from the equity crowdfunding business model. All students seek a way to get some type of real world work experience usually by working as free or highly underpaid interns. Imagine the learning benefits that student would receive when applying their desired major’s education such as business administration, finance, legal or marketing to the intense equity crowdfunding process of launching a startup company.
Instead of adding a bullet point for working a menial job as a small cog in the corporate machine as an intern, students just might be fortunate enough to work on several successful crowdfunding campaigns that would highlight their professional expertise such as business planning, structuring equity finance deals marketing, PR, video production, and/or copy writing. And if the sweat equity pays off in equity crowdfunding shares, they might become extremely wealthy when that startup goes public a couple of years after they graduate. This is how many, many Silicon Valley millionaires got their start. They just did not have a term for the process, which is now branded as equity crowdfunding today.
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