Social determinants of crowdfunded investment decisions

A new article published this week in the Journal of Business Finance and Accounting takes a step forward in the path that has been unfolding for those of us working at the intersection of community projects and private investments. The paper abstract says (emphasis added): “We investigate determinants of investment decisions in investment‐based (equity and bond) crowdfunding campaigns, using a novel investment‐, investor‐ and campaign‐level database, where equity refers to investments in entrepreneurial start‐ups and bonds to large real estate projects. We find that investors who have higher social interactions invest more. Social interactions are important in an equity crowdfunding context but do not affect participation in bond investments. This is consistent with the view that investors’ social networks help reduce information asymmetry. Women invest less in the riskiest (equity) investments but more in safer ones (bonds). These findings are better explained by differences in risk aversion than differences in overconfidence between men and women. Overall, the findings contribute to the understanding of how investment‐based crowdfunding can be a viable source of entrepreneurial finance and how entrepreneurs’ campaign decisions affect investor participation in this new form of entrepreneurial finance.”

What this means for us, simply, is that Baysave equity crowdfunding strategy should focus on men who are active is social media platforms or otherwise well-connected in their communities. Other lower risk debt-based projects like private mortgage might be more interesting to female and institutional investors.

This research finding appears to be consistent with earlier research and our own observations. Specifically, it addresses the ongoing conflict where the larger private investors want to discourage us from publicizing news of bayshore redevelopment while, in contrast, I see public media and social medial more frequently as a source of strength. Whenever publicly disclosed information is used against us in a marketing or legal situation, I hear a “told you so” from investors who prefer to remain private.

This is a useful reminder to us as we revise our 2018 strategic plan documents for 2019.

Crowdfunding for scientific and environmental projects

Since 2015, public media in Australia has covered the gradual transition of funding for scientific and environmental project to social media. ABC and NBC networks produced updates this week. ABC writes:

“The competition for research funding is driving some Australian scientists to crowdfunding. It can take up to a year for academics to find out if they’ve been successful in getting government grants. It’s highly competitive with the success rate for the Australian Research Council usually about 18 percent. But going cap in hand to the public, via the internet, isn’t a sure thing either.”

Crowdfunding has the potential of being faster than the grant process. But it has its own challenges. Baysave is also learning about crowdfunding; we’ve had some success and some learning experiences that were not immediately successful. In the long run, I suspect that both methods must be used in tandem for smooth operation in today’s environment.


Qualified Opportunity Zones vs. Qualified Small Business Stock at the bayshore

Community redevelopment or industry revitalization plans historically rely heavily on tax incentives to attract investment. Our local fisheries and aquaculture industries are likely to require large commitments of investment capital over the coming decades. A government program that abates taxes or exempts gains from taxation can make a project significantly more interesting to investors. Such programs can exist at the local, county, state and federal government level. This blog post focuses on the two most prominent options available at the federal level for the revitalization of the New Jersey bayshore. This blog does not attempt to explain each option, but rather focuses on the differences between them and briefly lists how I see each of them contributing to the bayshore community’s long term revitalization.

The first federal incentive programs are the Qualified Opportunity Zone authorized as part of the Tax Cuts and Jobs Act. This program is geographically restricted to a few blocks in downtown Millville and large parts of Bridgeton. Advisers see this program as most attractive to larger investors.  This program could primarily help us with commercial real estate projects in those locations, especially equipment manufacturing and seafood processing, and aquaculture equipment financing for the region. This is the investment format being considered by some institutional investors. More information is available on this new web site.

The second program is Qualified Small Business Stock. This has been around longer as Section 1202 of the Internal Revenue Code but its attractiveness is strengthened by a series of recent tax changes. Investments may provide immediate tax benefits. The long term attraction is that smaller investors can achieve tax-free gains of up to $10 million (or more) by committing to the investment for at least five years. This is the business format that will be used by Nantuxent Corporation for the revitalization of commercial fishing and aquaculture at Money Island.

There are risks with either program. The first risk is that the investment may not achieve the gains expected. The investments could lose money. The second is that the investment might not be liquid at the time the investor wants to cash in. The third risk is that the expected tax result may not be achieved either because tax laws change or because the management of the investment did not meet the legal requirements of the incentive program.

I am happy to discuss how either option might fit into your investment plans.