Industry Expert Interview: Crowdfunding Legislation, Accreditation Risks & Why Real Estate is King

Nov 20, 2017

The ArborCrowd Team is constantly meeting with industry leaders who are making an impact in their field of expertise. We recently spoke with Jor Law, Co-Founder of VerifyInvestor.com, and a corporate and securities attorney at Homeier Law PC, a corporate & securities law firm he also co-founded.

Thanks for speaking with us today, Jor. You formed VerifyInvestor.com in 2013, launching shortly after the Regulation D reforms took effect. What drove the demand for your business?

We are an accredited investor verification solution that aims to strike the perfect balance between legal compliance and investor privacy using a platform that’s automated, scalable and cost-effective.
When we saw that the new 506(c) rule would require accredited investor verification, it was apparent that the process would be extremely onerous. Both issuers and investors would have to trust third-parties to keep private financial information safe while conducting clearly legally compliant verifications. There were some solutions out there, but I was uncomfortable with their level of compliance, privacy and ease-of-use. So I decided to build my own.
VerifyInvestor.com developed a solution that meets the stringent federal requirements to verify investors and combined it with strong privacy and security protections. Then we retained a team of licensed attorneys who are bound by professional ethical codes and duties of confidentiality to conduct reviews and put together a world-class support team to assist investors. We spent a lot of time creating a user-friendly process of accreditation to keep things simple.

Serving this critical step in the crowdfunding process must give you great insight into the popularity of crowdfunding. What has the growth of your user base been?

Crowdfunding growth has essentially doubled each year. Our platform has seen a very similar growth trajectory. We are generally regarded to be the #1 accredited investor verification company for the crowdfunding industry.
As counterintuitive as it sounds, I think that a downcycle is necessary before the adoption of crowdfunded investment truly explodes. Downcycle’s force people and the industry as a whole to better educate themselves. Wide adoption ultimately comes when investor education grows.  There’s no question that crowdfunding is the future of finance, but we need some time to increase awareness and education so that people are more comfortable investing.

So what factors should investors consider when they are choosing a service to verify their accredited investor status?

I’m a big fan of the saying, “how you do anything gives insight into how you do everything.” If a crowdfunding issuer or platform is not taking best practices to verify investors in a legally compliant or safe manner, for example, what else might they be cutting corners on?
Going through verification is a serious step under federal law — but you can be smart about how you do it by providing as little information as possible. If you are proving income of $200,000, you don’t have to show all your income. If you are providing copies of bank statements, in most cases you can redact account numbers.
We see people who are worth a lot of money — who only need to prove they have a net worth of $1 million — sometimes they try to prove they are worth more. Just use the bare minimum. Providing as little information as possible is generally recommended.

How long does it take to verify accredited investor status?

The time it takes to gather documents varies. Some people already have everything in an electronic format, and in that case it only takes 5 to 10 minutes to submit. But it is really contingent on how accessible and organized people are in maintaining their documentation – so the length depends on the user’s ability to gather their information.
Once someone hands over their information, we ask for 1-2 business days for our attorneys to conduct the review. However, the review is usually done the same day or next calendar day.

Real estate is one of the most popular industries for the crowdfunding model. Why do you think it’s become so popular?>

The economics of real estate are simple to understand. It’s a tangible asset that I can see and touch — that’s a very powerful thing. And in most cases, real estate, when properly done and analyzed, is a pretty simple business. There’s only a finite amount of real estate available, so the long-term trend of real estate generally always goes up.

Commercial real estate investing can be very traditional and tough to get into. How have both sponsors and investors been able to adapt in this age of technology and conducting business online?

Early on, as the industry is growing, it’s important for portals to distinguish themselves from each other. One of the easiest ways to do it is to position yourself with a quality reputation in underwriting.
The second thing is to be extremely responsive and communicative with investors. Try to provide a lot of education much like ArborCrowd does. In the early days, it’s still important to have an investor relations team that is on hand to field phone calls and add a human touch to make people completely comfortable.  The future of crowdfunding may be automated with little need for human interaction, but we are still in transition today. Those who have failed to understand that it is still a people business won’t succeed in the near term.

Is there any legislation crowd sponsors or investors should be tracking?

There are always things changing. But, one thing to keep an eye on is whether lawmakers move to make crowdfunding more practical. For example, Regulation Crowdfunding currently has a $1 million cap. As a result, it isn’t used that frequently. If that cap was increased to $5 million, you could expect a significant increase in activity.
The other thing I would watch would be the definition of an accredited investor. Is that going to change? Are they going to expand it so that sophistication or understanding of a sector is sufficient to qualify? Are they going to increase the thresholds or keep them the same? That’s something that will impact everyone because the pool of investors could change.
Ultimately, as the industry matures, adjustments in how we define the parameters of investing and who can invest could potentially happen. So it’s important to always stay informed and educated.