By now, most people understand the concept behind crowdfunding platforms like Kickstarter: invest in a product and help bring it to market; receive the product . Simple. A similar concept applies to equity crowdfunding, except instead of investing in a product, people are investing in the company or project itself. They’re buying equity. And they can start investing for as little as $100.
Previously, regulations set by the Securities Act of 1934 to protect average people (from being swindled) also prevented those same people from investing in things like small startups, funds and real estate. Basically, if they weren’t an accredited investor (i.e., someone with an annual income of $200,000 or more), they couldn’t invest. That changed with Title III of the JOBS Act, which was passed in March 2015 and kicked into effect March 2016. Now, if projects are open to equity crowd fundraising, people can invest in them.
Rabble is a new equity crowdfunding platform that focuses not on real estate of small businesses, but on impact investing: projects that have a positive social and/or environmental impact. These projects can be anything from urban farms to renovated buildings. Basically, Rabble is a platform that allows people to invest in projects that they actually care about, at a minimal cost, and earn a return on their investment at the same time.
At launch, Rabble is only backing one project: Century Partners, a group dedicated to renovating and rebuilding housing units in Detroit. But more projects will be added to Rabble’s site in the future. We asked Umber Bawa, founder and CEO of Rabble, for more on Rabble, equity crowdfunding and how people can get involved.
The following interview has been edited for length and clarity.
Q: What is equity crowdfunding and why is it new?
A: Crowd investment, or equity crowdfunding, is where people pool their capital to finance a project or company that will yield some financial return. It allows people to become investors in projects or companies. This differs from donation-based crowdfunding in that “backers” aim to receive some financial return, instead of a product or “thank you gift” for different levels of participation.
What’s new stems from the JOBS Act. Recent JOBS Act rulings represent a transformational shift in securities law. For the first time, everyday people can invest in private companies. It allows companies to raise funds with a less cumbersome process than an IPO, and it allows non-accredited investors to participate in offerings that previously were reserved for high-net-worth individuals. This can result in innovative firms or projects that get funding from people who believe in the team and mission.
Q: Among other equity crowdfunding platforms, how is Rabble unique?
A: Most platforms focus either solely on startup companies or on real estate at this time. Rabble’s focus lies in between these two: we seek innovative, exciting and socially/environmentally responsible projects that are tied to real assets with strong historical performance. For example, we would help raise funds to build out an art gallery that has strong leadership, has been in existence for some time and has demonstrated an ability to pay back a note in a specified timeframe. We list projects that have a clear revenue model, are in operation, and are doing work that the community at large values; one that is good for a neighborhood or the environment.
Very few folks in this arena are emphasizing the impact investing space at this time — however, investment is shifting that way as millennials start investing and bringing their cultural attitudes with them. At the same time, institutional investors are focusing on ways to get involved in socially responsible investing with clear social return — Rabble is one way.
Q: How is Rabble different from investment apps like Mint or Robinhood?
A: Rabble allows you to invest in private companies and project specific ventures. You can think of it as private equity or venture capital that is available to anyone.
Q: So, is Rabble an app, website or both? And how can somebody invest?
A: Right now, you can access Rabble on the web. We provide more than just the interface; our team vets each project, takes the project through the legal approval process, and then makes the offering available through our site. After the project is up and running, we provide the backend to give backers/investors access to dividend payments in a very sleek, easy-to-use interface.
All people need to do to get started is to sign up with a U.S.-issued photo ID, link a bank account, review the projects, and invest.
Q: How many projects is Rabble linked with at the moment?
A: The first investment is being led by Century Partners a professional real estate development firm based in Detroit, Michigan. They’ve already had success in Detroit; over the last two years, the founders, David Alade and Andrew Colom, have deployed $3.4 million of equity to purchase, rehabilitate and lease over 60 abandoned homes in midtown Detroit. Investors will be investing alongside a new fund managed by Century Partners and will own a percentage of 31 homes in the Boston Edison, East English Village and North End neighborhoods managed by Century Partners. Investors will also be improving Detroit in the process by removing blight, providing high-quality housing to new residents and displacing no people in the process. We were connected by a summer intern who recognized one of the founders in an alumni magazine. We reached out, shared the same mission, and couldn’t be happier with their team and what we believe they’ll be able to deliver to investors.
Q: When will Rabble be involved with more than one project?
A: As soon as we close funding for this first project, we have other exciting projects on the way.
Q: If a project developer wants to have people invest in their project, how would they go about working with Rabble?
A: They would submit a project to us via our website. We have a way for sponsors to submit projects directly to us there. After review, we’ll reach out to the project team and if it’s a good fit, we will begin the diligence process. After diligence and our internal merit review, we prepare a filing to get federal approval to issue shares for each project and we list the project on the platform.
Q: What types of projects are good fits with Rabble? What kind of projects are you looking to work with?
A: We have rigorous financial, social and environmental impact criteria that each project must pass. We also look at the experience of the team in pulling off ventures of similar scale. Our current focus areas are urban revitalization, supporting arts and culture, and urban agriculture. As we grow, our focus will include green building and eventually renewable projects — think a community solar project. We’re also thinking of ways to move into small infrastructure.
Q: Is the $100 minimum investment exclusive to Rabble or is it common throughout equity crowdfunding platforms?
A: We set the barrier to entry at $100 to make the opportunity accessible to people of all income levels. The tagline “investing for all” is meant to represent two things: that all the projects we list have benefits for a community at large, and that each offering is open/accessible to a broad number of people. While we anticipate the majority of investments to be above 2.5K per person, we wanted to make that option available to be as inclusive as possible. Most platforms in this space tend to focus on a 1K minimum (Fundrise) or much higher (Prodigy Network, Realty Mogul, Cadre). Technically, we could make the minimum investment lower, but decided that this was a good entry level for the majority of people.
Q: Where do you see Rabble in five years?
A: This is projected to be a huge industry; a recent Goldman Sachs report estimates the size of equity crowdfunding to be 1.2 trillion dollars. That’s a greater market size than what’s expected for payments, small business lending and student lending combined. The industry is young. We’re in the early days…Rabble wants to become a leader in this space and grow with people as they shift their investing to align with their values. We want to be there.