Crowdfunding: A Legitimate Financing Option

The financial market collapse of 2008 resulted in tougher standards and regulations for the nation’s largest banks, making it more difficult in many cases for small-business owners to secure the funds they needed to grow their businesses. Since the financial crisis, crowdfunding has emerged as a real—and credible—alternative to banks, private equity and venture capital. This edition of Deal Talk delves into the details of what crowdfunding is, its advantages over traditional funding sources and how the application process works. Mr. Markus Lampinen, CEO of Crowd Valley, Inc., gives an in-depth discussion on an option that could help you raise the capital you need.

Questions Answered For You

  • How has crowdfunding and digital financing allowed business owners to grow their businesses?
  • How does a business owner go about getting financing through crowdfunding?
  • Is there a limit to the amount of money that can be obtained through these online sources?
  • What is the JOBS Act Title III?

This development around digital finance means that the cost of capital acquisition is going down, which means that the process -- and I'm talking time and money for actually getting access to the right investors, and the right investors getting access to you as the business owner -- that is getting shrunk essentially by a lot of these types of models. 

- Markus Lampinen

Key Takeaways

  • Crowdfunding is a private security transaction that is targeted at retail investors.
  • Development around digital finance is causing the cost of capital acquisition to go down.
  • The digital finance market essentially is a complement to the existing financial market.
  • Crowdfunding is an alternate source of obtaining financing for small-business owners. When soliciting financing through crowdfunding, you need to understand who your company is being presented to and tailor your presentation accordingly.

Read Full Interview

Jeff: Crowdfunding is changing the way entrepreneurs fund their businesses. If you want to learn more about how the business financing landscape has changed and what the future holds, you've come to the right place.

From our studio in Southern California, with guest experts from across the country and around the world, this is "Deal Talk," brought to you by Morgan & Westfield, nationwide leader in business sales and appraisals. Now, here's your host, Jeff Allen.

Jeff: Hello, and welcome to the web's number one content source for small business owners committed to building a business for eventual sale. Here on "Deal Talk" it's our mission to provide information and guidance from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value.

The world has obviously changed a lot for us owners of small and mid-market businesses. And thanks to the explosive growth of all things digital, and I do mean all things, so has the way that people can fund or at least partially fund their startup businesses or the growth of their established businesses. What could that mean for any plans you may have for expanding your company and your quest to improve its overall value? We're going to try to get some answers from our guest on this edition of "Deal Talk." Markus Lampinen is the co-founder and CEO of Crowd Valley in San Francisco. Markus Lampinen, welcome to "Deal Talk," it's good to have you sir.

Markus: Thank you, Jeff. It's definitely a pleasure to be here.

I think it's good news for business owners in a couple of different ways. One is that the cost of capital acquisition is definitely going down. But the other one, very practically speaking, is that if investors can bring their cost of making a deal happen down that means that investors will be able to get into different types of asset classes and different positions in companies.

Jeff: Crowd Valley, familiarize our listeners about what you and your team do.

Markus: Like you said, we work with this changing landscape of online finance, or take essentially offline finance and how it's interacting with the online finance landscape. What we and the company at Crowd Valley do is really help these financiers, so lenders and investors, move their business processes into an online matter. What that means is essentially creating these types of online applications where a lender can essentially offer business loans through an online portal, or solicit essentially various different investors through an online portal, or essentially get these applications for financing, whether or not it's equity transactions or done through an online portal. 

So streamline the process for finding the sources of capital but also matching those sources of capital to the actual recipients of that capital, whether or not... It's like you said, early-stage company startups, growth state companies, but it is also other types of asset classes. Like, for example, we work a lot in real estate, but I think we can focus on the business side.  

But just myself as background, I'm born in Stockholm, I grew up in the Midwest in Kansas. Last eight years I've been working with this digital finance market starting out of Hong Kong, then London, then New York, and now here in San Francisco Bay Area for the last two years. So, definitely can expect me to have a little bit of an outlook on the market not just in terms of geography. I started in 2008, and I mean that's the fun times of finance. Everything was in a sense going downhill.

Jeff: That's right.

Markus: But that's really the emergence also for these markets, that a lot of the need for more efficient ways of essentially accessing capital and streamline the process, that's really where they emerge.

Jeff: How has crowdfunding, or the concepts of digital finance allowed business owners to grow their businesses? How advantageous has it been for them in terms of being able to procure capital?

Markus: You can think about it in very, very basic building blocks. What essentially this development around digital finance means is that the cost of capital acquisition is going down, which means that the process, and I'm talking time and money for actually getting access to the right investors. The right investors getting access to you as the business owner. That is getting shrunk essentially by a lot of these types of models. 

Practically speaking, what that means is for a business owner, actually looking for working capital or a debt solution, or a debt instrument. Then there are a lot of online options nowadays that are emerging. There are a lot of regional banks, a lot of institutions that are looking at alternative ways that maybe as a bank they can't offer you the loan that you're looking for, but they could have a community of various types of alternative lenders. That could then be private individuals, different types of maybe smaller funds, whatnot, that would essentially work through a non-conventional model where it's more of a peer-to-peer lending or a peer-to-business loans type of marketplace. 

I think the bottom line is that, obviously, the fundamentals of finance and financing, they're actually not changing. But it is the structure that by streamlining the process, by, for example, having a single point where you as a business you can go in into an online application, online marketplace, you can essentially submit your information there, you can get a quote back that this is the type of working capital solution that we could provide for you. Then that can speed up the process quite a bit. 

But I will say as a caveat that... Since 2008 I've kind of seen myself or heard myself say repeatedly each year that we are still very early on in the market. I still think that that's very, very true. If you look at the financing and the online finance space in the U.S., we're at a little bit under $10 billion a year, and certainly 10 billion is a huge number. But that being said, looking and comparing that to essentially small and medium-sized business financing from traditional institutions, which is in the hundreds of billions or trillions even depending on what you include in that, then it's still a very, very clear minority.

But I think as the education also develops, and as these institutions, lenders for example, or even the equity investors, they figure out how they can streamline their process. I think it's good news for business owners in a couple of different ways. One is that the cost of capital acquisition is definitely going down. But the other one, very practically speaking, is that if investors can bring their cost of making a deal happen down that means that investors will be able to get into different types of asset classes and different positions in companies. 

For example, maybe in the smaller deals or maybe in the sectors that have been hard to put structure around the deal. And that just opens up a few possibilities. But it is still very early in terms of looking at this market. And I think in the U.S., in particular, there's still a lot of opportunities on the table for both companies to push their lenders and investors to adopt more streamlined tools, but then also actually as an ecosystem to create more knowledge around what is digital finance, what is financial technology, how does it relate to the existing sector, how does it relate to business owners, and how you foster that entire communication.

Jeff: A part of the conversation has been that business owners are kind of limited to how much money they could actually obtain through these crowdfunding sources. Is that still true? Are the limitations such that it really only restricts a business owner to doing so much with these particular funds where they may not necessarily be able to obtain all that they need to start their business, if it's a brand-new startup, or capitalize an entire growth project. Tell me a little bit about the limits and how much money could actually be obtained through these online sources.

Markus: That's a good question, and it's also one that has various different dimensions to it. So let's just take a step back and look at the term crowdfunding. So typically crowdfunding will refer to essentially a private security transaction that is targeted at retail investors. And retail investors are the non-accredited investors. And in that world, there are certain limits, and there are also essentially, there's specific regulation, the Title III of the JOBS Act for you who are interested in looking at that. 

But just taking the basic concept to us, crowdfunding. There's a transparency, there is the efficiency, and then there is essentially the access that you're creating. So transparency in the process in terms of what's actually being done, the fees, efficiency in terms of time and capital that actually goes into this process, and then access in terms of access to new asset classes, access to new investment opportunities for different types of audiences. 

So taking that frame of mind that we are talking about something that is maybe a little bit more of a concept rather than anything set in stone at this point. And I often say there's various different types of crowdfunding. Like you can talk about crowdfunding with family office type of investors, investors that are qualified and accredited by a long stretch that are very sophisticated in their investment. But if you're able to approach not just three but for the cost of approaching three approach 30, for example. And that's the sort of crowdfunding in my head.

And then there's many different permutations for that. But if you look at the very, very basics. A lot of times for a growth company, then you will go into the venture capital space or the private equity space, and we work with some venture capital companies that are creating these types of online marketplaces where they will have their traditional investment model. Like their traditional venture capital financing structure, which they have a mandate for, which they have an LP that has given them money. 

But there are a lot of deals that they see that don't fit into that category. So it might be that they foster essentially a co-investment platform where people can sign up and they can essentially get access to these types of deals that are outside of the venture capital fund’s mandate. For example, in the private equity space we see that there are a lot of firms that are generating deal flow from online portals. 

So just to give you an example there that we work with a private equity firm that essentially raises capital from an online platform, or using an online platform that we power for essentially helping with the generational shifts in terms of small and medium-sized company. And they're not raising a million, they're raising typically between 10 and 30 million.

They will go into a healthy business, they will look at the business, the owner wants to retire. They want to foster essentially a continuity in the company. They will raise, let's say, $20 million for a company that's doing $20 million a year in terms of revenue. They will go and they will help with that generational shift, and they will just raise capital from the online finance, or online means. 

And this specific example that I'm giving, it's a company called Cobalt Funds out of the U.K., actually. And the reason that I'm giving it is I find that example was quite interesting in a way that you don't typically think about that as crowdfunding in terms of playing in that type of a niche. But that's what we see, that those types of applications, whether or not it's growth capital or startup capital, there is various different permutations of this model. It's about finding the right one.

And it also goes to this other point that if you are, for example, a company that has a solid business. You have revenues, you have recurring customers, you have good business, then there are different types of investments or different types of capital sources that might be more appropriate to you than the other sources. 

So just as an example for that is if you are a Silicon Valley startup. You probably want to raise equity capital because you probably don't have revenues and a loan isn't that attractive. But at the same time if you are a company that has revenues, a company that has an existing clientele in business, then equity capital might not make sense. And there's a couple of different reasons. 

Obviously, a loan might be cheaper for you, cheaper capital in terms of your cap table. But then also the other way around that aligning interests with somebody that expects their equity to grow but the company is structured in a different way that might be difficult. And I said at the start that these digital finance models, they don't necessarily change the dynamics of finance, and this very much goes back to that. That looking at the type of capital that you need for your company.

There are marketplaces that specialize in various different types of capital, I mean on the equity and debt side, but is also at various different stages of the capital ladder. If you're, for example, looking at raising equity capital, there are different platforms that focus on smaller equity injections, and those might be sourced from a network of credit investors or small funds. There's companies that look at essentially larger areas of capital financing. 

As with any business owner, it is all about the fit. Finding that fit in terms of what kind of capital you essentially take into your company, because taking the right capital can align your interests with essentially the capital source. It can be a great way for you to generate momentum for your company and essentially get a cost efficient source of capital that really aligns your interests with the investors. But then doing the other way around, not taking capital from the wrong source, then that can be a very detrimental idea. 

And again, it's nothing new, nothing revolutionary in that. And a lot of the time that we look at this market, then we encourage people to think about the digital finance market as essentially a complement to the existing financial market. So you're not necessarily seeing anything that hasn't been done before but it's the way that those services are being offered that hopefully they're more efficient, hopefully they're more transparent, and hopefully they are more accountable to all the parties in that life cycle. 

Jeff: We're talking with Markus Lampinen. He's the co-founder and CEO of Crowd Valley Incorporated at the San Francisco Bay Area, and we're really kind of diving in deeply here into this idea of crowdfunding and what the growth of this crowdfunding industry means for your company. And how easy it might make it for you to obtain perhaps capital that maybe you might not find someplace else, or at least it gives you the options out there that you might not have had maybe five, six, seven years ago, maybe even three years ago. But our conversation with Markus Lampinen will continue. 

We're going to talk about when we come back basically the process for obtaining funding through crowdfunding and kind of how that process works when "Deal Talk" resumes right after this.

If you'd like to share your knowledge and expertise on any subject related to selling businesses or helping business owners improve the value of their companies, we'd like to talk with you about joining us as a guest on a future edition of "Deal Talk." Interested? Contact our host Jeff Allen directly. Just send a brief email with "I'd like to be a guest" in the subject line. In a brief message include your name, title, area of specialty, and contact information, and send it to, that's 
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Without the right team behind you, you could be leaving money on the table. So don't leave your most important business transaction to chance. Call Morgan & Westfield for a free consultation at 888-693-7834, 888-693-7834, or visit
Jeff: Welcome back to "Deal Talk," my name is Jeff Allen, and just to let you know, if you're listening to this program right now on iTunes, Stitcher or Libsyn, that's fantastic. That's exactly where we want you to be. However, as a bonus, on the website you can also find the complete transcript to this program. In addition to finding the transcripts for all the programs that we have recorded to this point for you. 

Thanks very much once again for tuning in. Jeff Allen with Markus Lampinen, CEO of Crowd Valley Incorporated in the San Francisco Bay Area. We're talking about crowdfunding. Markus, real quick. I do want to talk about the process for obtaining crowdfunds, because many people already know how to go to a bank and fill out a loan application to contact the Small Business Administration or the representative there. Or any number of other sources, private equity firms, they may already be familiar with. 

But first of all, I did want to ask you about something you alluded to. This is something we've touched on very, very briefly in our previous edition of "Deal Talk," and that is the JOBS Act Title III. Can you please explain to us, once again, and for those people who may be listening for the first time, what that is?

Markus: Absolutely. The JOBS Act is a provision that was essentially put forth in 2012 and it's been implemented in various different stages. It has six titles to it, so six different specific components of the regulation. And they've been implemented at different stages of the process. Like Title II introduced the 506(c) offering, which essentially means that for a private security transaction, you can now conduct general solicitation, so market it freely. But at the same time you can only sell it to accredited investors which are then accredited by their net worth or their assets. 

But Title III, specifically, Title III is what's referred too often as a true crowdfunding provision in the JOBS Act. What that specifically means is that you could through these online portals that Crowd Valley work with, then you could through them essentially solicit investors publicly through an online portal and essentially raise up to a million dollars in finances from a retail investor crowd. 

Now, it doesn't have to be just a retail investor crowd, it can be accredited investors too. But for Title III of the JOBS Act, the retail, the non-accredited investor is the key component. This means that specifically for the first time in American history in a public financing market in private transactions you could actually invest in the startups without having pre-existing relationships.

There are some caveats, and we have great material on that on our Crowd Valley blog, for example, on the specifics of the actual regulation. But the key components are essentially for a non-accredited investor than the amount that you can actually invest in startups. It's then linked to essentially your income, and then for the companies, how much they can raise. It has different tiers. So for essentially being able to provide audited financials and you get a higher tier, and ultimately you can raise up to a million dollars.

Jeff: What you're saying is basically is much like the way that investors could invest in publicly traded companies today, private investors, those are non-accredited investors, folks like me, for example, would be able to invest in and perhaps somewhat limited depending on their income would be able to invest in private companies.
Markus: That's right. Hopefully in a secure and a very efficient process.

As with any business owner, it is all about the fit. Finding that fit in terms of what kind of capital you essentially take into your company, because taking the right capital can align your interests with essentially the capital source. It can be a great way for you to generate momentum for your company and essentially get a cost-efficient source of capital that really aligns your interests with the investors.

Jeff: Exciting times. And once more, just the number of opportunities that continue to grow out of this, just unbelievable. The process of obtaining crowdfunds, for those business owners who may be really interested in looking at this and researching this, and thinking about this as a possibility for obtaining capital to grow their companies, perhaps finish a construction project, add new equipment, whatever the case may be, tell us how it works. How do we get this money?

Markus: You mentioned the reference earlier that you know how you go to your bank you fill out the loan application, the SBA in that process. And the process I would argue is not that far removed from that. So you have to find essentially the portal or the platform which has its entry, the investors or the lenders that you're looking for. And you have to find one that actually fits your needs. And I'm not saying that once you see cash then you go all in, but rather research the portals, research the actors, research what they've been doing, what their diligence process is, how they handle the process, what fees they take, and kind of the process from there. 

But really, once you find a platform and you can just search on Google and you can find a lot of press around these portals and your specific niche for example. Let's say that you are working in agriculture, then just start by looking at agriculture innovation and online financing. And you can find probably various different platforms that are focused on that specific niche. But then you just read about them, you get familiar with their process. Typically it goes pretty much like essentially the banking process. 

You essentially have to present your company, of course. They have to do certain diligence on your company, make sure that everything is in check. The amount of diligence that they do, it does really depends on their model and essentially on who they are, but that should be explained to you by them quite clearly. And that's certainly important for you to understand because, that will have an impact on how your company is presented.

And then you need to understand also that who is your company being presented to. Is it going to be these types of investors that fall into this non-accredited crowd? And then your expectations should be in line with that, that you can't expect to raise $10 million if the restriction on the platform says that it's a million tops or even half a million based on different types of statements that you can provide. So understanding the platform and the party that will arrange the financing or broker the financing, that's incredibly important. Because that's essentially who will oversee the process end to end and that's who will also help you in that. 

Their success rate is also important for you to figure out, that, have they been able to help companies like yours before? Because there are specialists all around. But essentially you need to make sure that you have the basic things in place for your company in terms of how to present and create this narrative around your company. 

And it's a little bit different depending on who you talk to. For example, the bank loan application. And certainly if you're working with an online lender that has a similar process and it's going to be quite similar. But if you're talking to a group of ultimately private individuals, maybe some family offices, some wealth individuals that invest essentially into smaller or medium-sized companies for their own personal reasons or out of their own personal cash. 

And it's going to require you to tailor your presentation a little bit. The financials of the company are these types of things, they are what they are, so those are quite factual. But once you actually get to the presentation, and you probably want to emphasize certain things. Let's say that, for example, you are a mission-driven company that seeks to empower, for example, agriculture in certain states. Then that could be something that resonates very strongly with certain types of individuals. So it's all about kind of honing that value prop and that key massage that your company actually promotes.

Like, for example, if I take it back to Crowd Valley, then we are working on essentially this democratization of the financial market, and that's something that we as a company really believe in. And that's certainly something that some other people believe in as well. But finding those people out of these marketplaces, that's important. 

But oftentimes these marketplaces and these operators, these online platforms, they are quite often, meaning that you should be able to have a conversation with them, get information about their process, hopefully also already from their website or the representatives. But certainly you should be able to get somebody on the phone and just talk through these things. Because one of their key roles in this market is education, investor education, but certainly business owner education, and just market education in general. 

Because ultimately, if you're able to be smart about who you approach, and how, and through what process, then that's in their very selfish self-interest as well, which is a good thing. Because ultimately you want the same thing as them, and you want to make sure that those things are aligned as far as possible. That you find the right investors through a structured and efficient process for the right company.

Jeff: And so at the end of the day it really is about educating yourself, taking the time to see what's out there. Learn all about online financing as much as you can. And we know that folks are busy. There will always be probably resources online that people can connect with, and no doubt people that they can speak with, that they can actually call up and get their questions answered. And that's kind of where we've come to in this part of the program, Markus. 

I know that you're so fixed, right in the middle of all of these tremendous developments and certainly it’s grown beyond just a cottage industry anymore, crowdfunding has really become front and center. A true option for business owners to consider when it comes to deciding how they are going to finance their next move, whether that means to grow their company or to start up a brand-new venture. 

Markus, if we have folks in the audience who may be interested in reaching out to you, should they have any questions that were unanswered in this program today, how can they reach you?

Markus: Absolutely. And I'd be very, very glad to continue the discussion. You can find our website at On our website you will find a lot of research that we published, white papers, different case studies, different tutorials, which is our commitment for essentially generating educational material in this market, but also providing statistics on some of the activity that we've got. My own details, you can reach me at It doesn't matter how you spell it, it will all reach me anyway. Or then just get in touch with our team at

And really, a lot of the work that we do is fostering this discussion around how these online financing marketplaces, both equity and debt, and cross various different asset classes, how those are changing the very practical things that business owners, but also different types of investors and lenders, go through. So in that discussion, if there's anything that I can do to be of service or helpful in, then I'm very happy to have that conversation.

Jeff: We appreciate that, Markus, very much, that offer to do that. And I hope that I can have you back on the program soon because I know that there is a lot of information we have yet really to cover. And because of the developments in crowdfunding as a financial resource for so many business owners out there, regardless of your stage of business ownership, there are more and more developments coming along, practically on a regular basis now. And so I'd like to be able to have you back on the program again.

Markus: Thank you, Jeff, and I’d definitely love to be back here.

And I'm not saying that once you see cash then you go all in, but rather research the portals, research the actors, research what they've been doing, what their diligence process is, how they handle the process, what fees they take.

Jeff: Thank you, sir. That's Markus Lampinen, he is co-founder and CEO of Crowd Valley Incorporated in the San Francisco Bay Area. I hope that you enjoyed this program. I know that I did. And I hope that you tell a friend about "Deal Talk." In addition to you can find us on iTunes, Stitcher and Libsyn. "Deal Talk" has been brought to you by Morgan & Westfield, the nationwide leader in business sales and appraisals. Learn more at My name is Jeff Allen, until next time. Thanks for listening.

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