Crowd-funding as a support to Georgian Stock Exchange
12 July, 2012

Many refer to crowd-funding as a “new phenomenon” (or – at worst – the “new bubble”). However, it is not as new as we may think; as a concept, it has been around for some centuries already. The novelty lies in the technologies and the mindset that are giving it a new momentum, technologies and mindset that we will consider in this chronological record of the main events leading to what we now refer to as crowd-funding.

 

If we accept the “web” and the “crowd” are two essential elements in defining Crowd-funding as an activity, the very first examples could perhaps be observed in the late ‘90s, when some Internet campaign funded projects and charity fundraising platforms started to appeal. This model was developed and expanded into what is known as peer-to-peer lending, an alternative to traditional bank lending, and it grew to accommodate the process of lending money outside of exclusively developing countries.

One of the first peer-to-peer lending sites to launch was Zopa, a London-based company providing an online money exchange service. Zopa operates within the UK, Italy and a service is being developed for Japan. In 2006, Prosper was launched in the US, following the same model. In 2007, Lending Club launched the second peer-to-peer lending site. Like KIVA, individuals submit requests for funding, which include a story, a picture and their credit risk. However, these platforms were not particularly successful in the beginning, possibly because of overly tight regulations, and maybe because society was not quite ready, yet.

As outlined above and as already mentioned in the last post, crowd-funding has strongconnections with the reach, empowerment and engagement of social media. The rapid evolution of social media is giving free rein to our social nature without the limits of any borders. For some time ‘Crowds’ have been forming affinities around interests and missions, creating new products and services, feeding innovation and, to using the Internet to exploit the spare processing power of millions of human brains. One of the results has been a new mindset built on trust and participation, ready to embrace diversity, capable of reinventing itself, and empowered to change the world. Our need to support and get involved in projects we care about is deep rooted in our humanity as much as our tendency to improve things and innovate in order to live better.

Crowd-funding can be seen as a natural response to fill the gap left in capital formation and funding models in the modern society. March, 8 2012 in the House of Representatives crowd-funding initiatives were treated to a rare showing of bipartisanship. The House passed HR 3606 to make changes to USA securities laws allowing crowd-funded companies and other early-stage ventures to legally solicit investors. Now it is up to the Senate to pass its equivalent bill SB 1933, which is expected by most legislative analysts. Congress has gotten letters of support from hundreds of venture capitalists and corporate founders over the past several months. The question of the day is: Is there necessity to adopt similar law on crowdfunding in Georgia in order to lower investment threshold for small and medium size business ? As of today- Georgian Stock Exchange (GSE) - is the only organized securities market in Georgia. Designed and established with the help of USAID and operating within the legal framework drafted with the assistance of American experts, GSE complies with global best practices in securities trading and offers an efficient investment facility to both local and foreign investors.

Automated trading system of GSE can accommodate thousands of securities that may be traded by brokers from the workstations at the GSE floor or remotely from their offices. As of July 1, 2012 133 companies were traded on GSE, with total market capitalization of USD 0.86 billion and the average daily turnover of USD 391,605 . Variety of small and big size banks in Georgia do a good job in private banking; however a friend of mine running bakery shop would like to have a credit line as a backup to the family business and it might be crowd-funding which would help his business be prosperous. Let’s leave this issue for lawmakers and bankers. All that glitters is not gold and not necessarily good for Georgian small and medium size business, however crowd-funding might be a remedy.

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