My wife is from Cincinnati, and she misses her family dearly. We do a good job of staying connected with frequent visits, but she tells me she misses everyday stuff like lunch with her sister or a nephew’s soccer game.
Cincinnati is four hours away; she says she could handle 90 minutes, but four hours is just too hard.
We’ve thought about getting a small airplane, but there are so many limitations. What we really need is a flying car.
"Ha," you say, there are no flying cars, and that’s true. But it might only be true for today.
I came across a company that believes it will have a commercially viable consumer flying car within seven years. Problem solved. Now that’s cool.
But what gets this conversation into a finance column is not that flying cars are cool, but rather how this company was raising funds to develop this technology.
The company was offering shares to investors through a process called crowd funding, and with some important rule changes occurring with securities laws, crowd funding may become a more important part of some investor portfolios.
First, I am not suggesting anyone go out and invest in flying cars. Investments of this type are incredibly risky and anyone doing so should accept the possibility of losing all of the money invested.
Because of the risk involved, under SEC rules investments of this type have only been allowed to what is known in the securities industry as an accredited investor. An accredited investor has liquid assets of more than $1,000,000 or annual income more than $250,000. In addition to the financials an accredited investor must also certify they consider themselves sophisticated and able to properly understand investment risk.
Needless to say, the need to be accredited is a limiting factor for many potential investors.
Starting later this year however, new SEC rules will allow all Americans to invest as little as $100 in these types of startup companies developing innovative new products.
So many investment industry rules are focused on maintaining liquidity and price transparency for investors. While these things are good, I also think these rules have unintended consequences.
When investors are continually focused on liquidity and pricing, I think even long-term investors become too short term myopic. Hence all the commercials for online trading firms on TV. Does any commercial mention being a patient long-term investor?
Investors in crowd-funded opportunities will have no public market for their holdings. The value of the flying car company will not scroll across a TV screen all day. These investors will accept this lack of active pricing and will be forced to be patient and focused on the long term.
Investments like the flying car company will not be subject to high frequency trading and flash crashes (yes I said crash). Investors will need to wait and hope their investment pays off over time. Sounds like futuristic investing the old-fashioned way.