Crowdfunding could allow mom-and-pop investors to function as angel investors.
(TNS) -- On Monday, a new type of crowdfunding will become legal, and the public can begin buying shares or debt in private companies.
But will Philadelphia start-ups and local entrepreneurs raise big money through crowdfunding?
If this past week's Angel Capital Association convention is any indication, probably not right away.
Sebastian Gomez Abero of the Securities and Exchange Commission's Office of Small Business Policy addressed the angel-investor crowd Wednesday, and as one of the authors of regulation for crowdfunding, sought to clarify for investors and issuing entrepreneurs the rules on this new type of financing.
"As of next week, start-ups can sell to ordinary, nonaccredited investors, with some limitations," he said.
Angel investors are usually the first or early-stage investors - often friends and family - who put money into start-ups and expect returns after many years when the companies go public. Crowdfunding would allow mom-and-pop investors to function as angel investors, as well.
The association's chairman, Christopher Mirabile, told the crowd at the Convention Center that he foresees crowdfunding being useful in civic enterprises, say, for communities to finance a local hospital or campground, or resurrect a local business.
"As for angel investors, they will likely stick with regulated deals" through which they invest currently, he said."This is a new breed of investor. But it will be very expensive money for companies, compared with regulated money from accredited investors."
The association has more than 13,000 members, who invest individually or through the 240 ACA-member angel groups, accredited platforms, or family offices. The 2016 ACA Summit here had about 600 attendees.
Crowdfunding may grow slowly, in part because Pennsylvania already has avenues for start-ups to find funding, said Cognition Therapeutics cofounder Susan Catalano.
Her start-up company, based in Pittsburgh, is developing a drug to treat Alzheimer's, called CogRX CT 1812.
"We did a road show and got capital from Ben Franklin Technology Partners, which is well-known for seed funding at the state level," she said.
Cognition has raised roughly $25 million since its founding and will be starting U.S. clinical trials of its drug toward the end of 2016. It is now conducting human trials in Australia.
Would she and her Cognition Therapeutics start-up cofounders consider crowdfunding?
"Possibly. We're entirely angel-funded. But crowdfunding is attractive to use because it allows us to access capital in a way that lets regular people participate. So many are touched by this disease and they want to get involved."
Caitlin Cameron is CEO of OtoNexus, a start-up working with Children's Hospital of Philadelphia on a grant to test a new pediatric device that allows doctors to examine ear infections using radar technology.
"We're considering crowdfunding, but right now we're all angel-invested," she said. Her company has no plans to crowdfund currently.
Other local start-ups and investors that mingled at the angel association include Luxtech, a manufacturer of LED technology, based at the Navy Yard; Philadelphia-based Keiretsu Forum; Robin Hood Ventures of Wilmington; Gabriel Ventures; Delaware Crossing Investor Group; the Mid-Atlantic Angel Group Fund; and Rittenhouse Ventures.
©2016 The Philadelphia Inquirer Distributed by Tribune Content Agency, LLC.
Never miss a story with the daily Govtech Today Newsletter.