Joanna Schwartz is in typical startup mode, her days (and many nights) filled with calls and meetings with investors and entrepreneurs and strategy sessions with her team of 12 as they prepare fund-raising campaigns for growth companies and real estate ventures. She is the CEO of EarlyShares, a portal for equity “crowdfunding” with more than a dozen active campaigns in progress and more in the pipeline.
“There is so much going on, our heads are spinning every day, but it is all in such a good way,” said Schwartz, who has founded and/or led companies in a variety of industries.
First, a bit of history: Incorporated in 2011 in Miami, EarlyShares was built to be a crowdfunding company. In April of 2012, the JOBS Act was signed that legalized the concept of crowdfunding although the regulations would still need to be put in place. The company went full force into education, brand-building and putting the building blocks in place for what the company was to be.
Schwartz joined the company in early 2013. At that point, the Securities and Exchange Commission still had not released the final regulations, known as Title III, that would allow companies to offer equity stakes in their companies to lots of ordinary investors. But in September of 2013, the SEC released a set of regulations, referred to as Title II, that allowed the advertising of deals, opening the door to crowdfunding for sophisticated, so-called “accredited” investors.
By year’s end, EarlyShares opened its platform to accredited investors and began offering them direct access to private opportunities.
Here’s how it works: EarlyShares first puts the company raising money through due diligence. Once vetted, EarlyShares helps the company set up the campaign and handles the administration and documentation, and assists with marketing. Companies get a dashboard to monitor and manage the campaign, saving time and eliminating back-and-forth emails with potential investors.
Visitors to EarlyShares.com see minimal information about the deals, such as how much the company wants to raise, minimum investment and some basic facts about the company and management team. Accredited investors interested in a deal must request an invitation to see the full deal details, including the business plan and financials. Investors also are vetted, and the companies seeking funding decide whether to grant access; they can also turn down an accredited investor at any point in the process.
As for the status of equity crowdfunding for non-accredited investors, the proposed Title III rules were published and the comment period ended earlier this year. Many entrepreneurs and startup companies said the restrictions, as written, would actually deter smaller companies from crowdfunding. The New York Times called the new rules “a joke.” EarlyShares, for its part, submitted a seven-page response to the SEC. These came as regulators tried to make it easier for small, privately held firms to raise capital from the public while ensuring investors are protected against fraud and other risks.
Crowdfunding analysts and market watchers have speculated that regulators could release the rules by the end of this year. In the meantime, more than a dozen states have passed laws allowing equity intrastate crowdfunding, where both the project and the investors are in the same state. A proposed bill was floated in Florida this past session, but it did not advance.
Schwartz said the platform is fully ready for Title III deals but if EarlyShares is not happy with the final rules when issued, the company will remain a platform for accredited investors.
“We’re good. We like to say we are Title III agnostic. This is too good of an opportunity we are sitting on, we are really early in the growth cycle of this,” Schwartz said. “We’re in the first hit of the first inning of the first game of the season. If you think about it, 80 years of regulation has been undone only two quarters ago. Granted we are in an age of super fast adoption, but private capital raising is a $2 trillion industry.”
The first seven months as a fully functioning platform have been a learning experience for the young company. Said Schwartz: “We’re changing the old ways of doing things, and taking root and growing is going to take a little while.”
The Miami Herald talked to Schwartz recently at EarlyShares’ Brickell offices about the company, crowdfunding and the status of the regulations.
And the Beacon Hill real estate project is sponsored by Rivergate Partners, a Miami-based firm with 30 years of executive leadership in the multi-family market.
Title III could be completely transformative if it’s implemented the right way by the SEC — and EarlyShares would welcome the opportunity to bring more individuals into the private investing community — but the initial rules have too many challenges as proposed. I don’t foresee the SEC implementing Title III within the next few months, but EarlyShares will only offer Title III opportunities if the rules are modified to be more advantageous for investors and issuers.
Follow Nancy Dahlberg on Twitter @ndahlberg.