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Crowdfunding: The Paradox of Localization and its Subsequent Transparency
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Crowdfunding: The Paradox of Localization and its Subsequent Transparency

Editor’s Note: The following comes to us from Chris Septon, chairman of Burgundy Funding, a non-profit group that facilitates connections among crowdfunding and crowdsourcing industry leaders and enthusiasts. Septon shares his thoughts on localized crowdfunding and how it can help support businesses in small-town America. The original appeared on the site blog, and we are reposting the piece here with the author’s permission. Follow Burgundy Funding on Twitter @BurgundyFunding.

Crowdfunding ultimately provides concision of concept while simultaneously attracting localized funding.

Unlike traditional or auction-based IPOs, where investors are seemingly distanced from a company by investment banks, in-house valuations and volume-focused sales, crowdfunding investors will demand greater access to a company's day-to-day performance. And, given the likelihood of greater emotional connection within a crowdfunded investment, investors will often emerge from within the locality of that opportunity.

In other words, "local funding" will not be limited to friends and family; local funding will evolve into a cross-pollination of supporting professionals, affiliations, and community members who have an immediate and vested interest in the success of that startup.

As the SEC continues the process of formalizing the rules of crowdfunding and its primary vehicle, funding portals, there is mounting evidence that crowdfunding investors are savvy and aware of risk potentiality. Drawn out concern over individual investor protection dismisses, or fails to recognize, the rapidly self-correcting and self-regulating nature of crowdfunding.

Clearly, funding portals should not face the same scrutiny as traditional broker-dealers. However, crowdfunders should have increased access to company performance on a real-time basis, and it falls on the shoulders of the SEC to effectively define those crowdfunding and funding portal rules.

The power of localized funding will necessitate greater accountability and engender a sense of community responsibility that is more genuine and effective than any measure of compliance achieved through overburdening regulations. Perhaps the optimal test of this hypothesis might be conducted in small-town America.

Those towns that have lived with negative population trends, boarded-up windows on their Main streets, and succumbed to shopping at big-box retail facilities at the intersections of neighboring zip codes, would be wise to give crowdfunding a try. The demand for fine dining, quality entertainment, and competent service providers is no less strong than in metropolitan areas (save for the conundrum of not knowing what you want until you have had it), yet more importantly, small-town swagger requires localized control and development.

This should be a wakeup call for those mayors who have failed to generate commerce opportunities for their communities. Chasing the big elephant of a large manufacturing plant or corporate satellite office has proven to lead many towns into a deepening rabbit hole. Crowdfunding could and should become the means of localized economic growth and development. The "Mom & Pop" store isn't dead - it's just not funded.

Successful business startups will engage their crowdfunding investors in ways that are antithetical to today's investment environment. The explosive field of Big Data has demonstrated that the tools of transparency are readily available. It would behoove the SEC to define rules that enable entrepreneurs to spend more time developing business plans that are focused on transparent objectives and less time producing boiler-plate, mind-numbing risk factors that few understand and even fewer actually read.

Crowdfunding is evolving. It is more than a fad for the next great idea. Innovation will flourish, but so too will demand for the products and services of yesterday. Localized crowdfunding may prove to be the proportionate equalizer that rewards entrepreneurs for ingenuity and hard work while also demanding a new, community-centered business model.

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