By J.P. Dahdah, Founder & CEO of Vantage
The alternative investing landscape continues to evolve which requires investors to keep up with the terms which will play a significant role in financial conversations for years to come. In case you haven’t figured it out, there will never be a moment in time on your financial journey that allows you the stop learning. The good news is that we have entered “the alternative investment era” whose genesis was the enactment of the Jumpstart Our Business Startups (JOBS) Act in 2012. One of the main objectives of the JOBS Act was to facilitate the ability for smaller companies to raise capital through private investment offerings. Why is this such a big deal? It’s simple. It’s a big deal because financial professionals and thought leaders believe that by easing the regulatory burdens imposed by federal securities laws, access to a greater number of investment opportunities will be made easily available through “general solicitation” marketing activities. Is this a good thing? Some say yes and some say no! Regardless of what side of the debate you are in, the bottom line is that big changes are coming and the alternative investment marketplace is experiencing an unprecedented transformation right before our very eyes.
I encourage you to spend some time learning about the buzz words alternative investors should know so that you can improve your fluency in the alternative investment dialect needed to help you direct your retirement savings more effectively.
Private Placements: A funding round of securities which are sold through a private offering versus a public offering such as Wall Street based investments. Private placements are subject to the Securities Act of 1933 but do not have to be registered with the Securities and Exchange Commission (SEC). Most private placements are offered under the Rules known as Regulation D (AKA Reg D offerings).
Accredited Investor: Investors with a net worth in excess of $1 million or annual income exceeding $200,000 as an individual or $300,000 combined with a spouse. This definition is relevant because if you qualify, you are the only investors that are legally permitted to deploy capital into private placements. In most cases, all investors must have sufficient financial knowledge and experience to be capable of evaluating the risks and merits of investing in a private company.
Fin-Tech: This buzz word is short for the innovative financial-technology sector composed of companies that are developing web-based alternative investment marketplaces (AKA portals and platforms). With the new wave of digital solutions via smart phones and tablets, alternative investments are being offered and purchased online for the first time in our history. This has created a huge opportunity for financial- technology focused start-ups to pop up seeking to provide investors and advisors alike with a comprehensive online alternative asset marketplace with a turn-key investing experience. To view an example of a popular Fin-Tech portal, click here and watch video to learn more.
Equity Crowdfunding: The practice of funding a private venture by raising capital from a large number of people, typically online. The funders receive unlisted shares of a privately-held company, usually in its early stage (think high risk), in exchange for the money being pledged. The crowdfunding model is fueled by three types of actors: 1) the venture initiator who proposes the business idea to be funded (AKA investment sponsor/promoter) 2) individuals or professionals who support the idea and 3) moderating organization (AKA the “platform”) that brings the parties together online. Watch video
Credit/Debt Crowdfunding: Allows a group of people to lend funds to individuals or businesses in return for interest payment on top of principal repayments. Also commonly referred to as “peer to peer lending” or “peer to business lending.” To view examples of the two most prominent debt crowdfunding platforms in use today, please visit www.prosper.com or www.LendingClub.com.