New US rules to benefit Donegal start-up

An Irish equity crowdfunding company is likely to be one of the main beneficiaries of new American financial rules that are expected to revolutionise the way small firms raise capital.

Donegal-based SeedUps has been waiting for some years for the new Securities and Exchange Commission (SEC) regulations that came into force earlier this week. The new rules permit unaccredited investors to invest privately in early stage start-ups, meaning that companies can raise up to $1 million without prior approval from the SEC.

They also allow ordinary punters to take a chance on high potential firms, rather than simply leave it to venture capitalists.

SeedUps developed its seed funding platform back in 2011. While it has been active in Canada since 2014, where it is ranked as the country’s leading equity crowdfunding platform, it has been awaiting the introduction of the new rules in the US.

"We are already live in the USA with two platforms, one of which is via a joint venture with an equity house that is using our technology and the other of which is our own. We have already onboarded over 1,000 tech companies looking to use the new crowdfunding rules and are looking forward to getting going," chief executive Michael Faulkner said.

SeedUps was co-founded in 2010 by Mr Faulkner, who is also chief executive of the foreign exchange and money transfer firm Euroxchanger Currency Services. It is primarily focused on tech start-ups in the US, Ireland and Britain.

“We originally built the SeedUps platform nearly five years ago but, because the regulatory establishment hadn’t been fully established either in Ireland or in mainland Europe, we pitched our tent in the US because we thought it would be one of the first to move to embrace crowdsourcing,” said Mr Faulkner.

The company had to wait considerably longer than it expected, however, for the introduction of new rules allowing equity crowdfunding for all.

Although US president Barack Obama signed the new rules into law that allow for the introduction of equity crowdfunding in the US in April 2012, a protracted review by the SEC has led to a long delay in it coming into force. The SEC finally voted on and passed rules to implement Title III of the JOBs (Jumpstart Our Business Startups) Act last October, and they came into force on Monday last.

“Progress was slow in establishing how the regulatory framework would work and there was plenty of lobbying against it, with some of the main players in the banking sector trying to delay it being enacted,” said Mr Faulkner.

While the company has a number of rivals in the US, it believes that it has early adopter advantage over many of these.

“We were told originally that there were 85 platforms ready to take advantage of the new rules which sounds like a crowded market. However, as of last month our law firm, which has been very close to the SEC from the start of the process, advised us there were only 30 applications in, of which only six were invited for interview.

“Moreover, less than half of those applicants had built out the technology and there’s a six- to 12-month timeline to do that.

“We have our platform ready for years and have been tweaking it in a live marketplace in Canada, which is very close to the US market in terms of regulatory framework and payment systems so we think this gives us a competitive edge,” said Mr Faulkner.

SeedUps, which employs 14 people in Ireland and another 20 further afield, said it envisages taking on an additional 10 employees here now that it is active in the US. Mr Faulkner added he was hopeful of increasing headcount further but said this was unlikely in the near term.

“We’ve been working with the EU through their consultation process and at some point there will be something akin to the US legislation enacted in Europe, but we’re not there yet.

“We have also had discussions with the Department of Finance and Central Bank here, but Ireland is way behind on alternative funding options. Some countries, particularly the UK, have taken the initiative themselves in terms of friendly adoption tactics. This explains why Britain accounts for 80 per cent of all crowdfunded investment in Europe right now,” said Mr Faulkner.

“I would like to see regulations that would enhance and create an environment in which businesses in the Republic could use innovations such as equity crowdfunding and peer-to-peer lending to start to raise money rather than relying on the banking systems which remains very slow and risk adverse,” he added.