With more baby-boomers steering toward retirement, a rapidly increasing number of companies of various sizes and across all industries will be in need of exit strategies over the next couple decades. Crowdfunding will open up the doors of opportunity for smaller investors to get involved in these transactions. So, rather than the traditional, single sale event, owners can tap into several hundred smaller investors to sell their companies.
This type of funding option will also allow business owners the flexibility of selling off only a portion of their companies over a designated amount of time. This is an ideal solution for owners that would like to take some money off the table but still wish to maintain a certain level of controlling interest in the business. For instance, an equity crowdfunding campaign could be established and leveraged to sell a $7M company at $1M per year for 7 years.
There are a few glaring reasons why crowdfunding for M&A’s hasn’t quite taken off just yet. Firstly, the number of shareholders alone can make the deal seem somewhat unappealing. This is due, in large part, to the fact that these types of larger-scale transactions are too new and unfamiliar. Another perceived downside to this source of funding is its lack of high returns, at least in the short-term. With slower growth levels and larger pooling circles, the ROI in crowdfunding a merger or acquisition may not seem nearly as attractive as that of a single VC deal. Again, this perception is likely due to the lack of successful case studies to consider.
Working Out the Kinks
As the crowdfunding industry continues to strengthen, the idea of leveraging this type of structure to carry out M&A’s will only become more attractive – especially for those businesses for whom the right single buyer cannot be found. As things develop, however, there are still a few important things to consider:
- Legality – It goes without saying that the appropriate laws and regulations regarding crowdfunding a merger and acquisition will need to be developed and implemented to protect all parties involved.
- More Players – For crowdfunding M&A’s to really take off, there will need to be buy-in and willingness to participate from critical players, including advisors, firms and quality investors.
- Sustainability – In order for this type of funding to truly work, crowdfunding portals will need to be able to tap into and sustain a continuous deal flow.
As the crowdfunding industry continues to emerge, and we work through some of the issues listed above, all indications point toward a more widespread acceptance of this type of funding for M&A’s. Companies that are finding it difficult to locate and/or attract qualified private buyers will now have new and, in many cases, better avenues to consider. Likewise, business owners will begin to see the benefit in the ability to benefit from a slower exit strategy by adopting crowdfunding over traditional methods.
It’s also highly likely that M&A’s will continue to grow within the crowdfunding realm itself. One such example is that of the crowdfunding platform Fundable and start-up support network Launchrock. By joining forces, Fundable now has access to Launchrock’s 10M+ users and virtually unlimited opportunity to facilitate seamless crowdfunding transactions. These types of acquisitions and collaborations will allow crowdfunding platforms to diversify and expand their offerings, ultimately making them more attractive to businesses.
Simply put, crowdfunding is vastly broadening the options for business sales. And, as we dip our toes deeper into these newly discovered waters, we may even find that this type of funding offers more rewarding benefits to those involved than traditional methods ever could. So, despite its relative immaturity, the trends indicate that crowdfunding for M&A’s will only continue to become a more appealing and legitimate opportunity for businesses and investors alike.