Crowdfunding, which has been the way churches, charities and political parties have always raised their funds through donations from people who believe in a cause, is becoming an increasingly popular form of raising capitol in the business world.
Kickstarter is a successful website used to crowdfund different types of artistic projects. For entrepreneurs looking to raise capital to fund their start-up company, there is equity crowdfunding, which is the newest and potentially biggest game changer in the world of business. One simply puts their business plan up on their website and in return, sell equity shares to investors. It's easier, faster and more efficient than going after individual investors one by one. This has been made even more accessible with various online platforms, such as Fundable, Equity Net, Microventures, Startup Valley and Realty Shares.
The Jobs (Jumpstart Our Business Startups) Bill, which was passed back in the spring of 2012, was intended to accelerate the growth of small businesses in the U.S. by easing some of the securities regulations associated with raising capital. Title II of that law allowed early stage businesses to openly solicit capital investment for the first time. This gave rise to the proliferation of online crowdfunding platforms, although participation in equity funding online is still limited to accredited investors, including those with a net worth of over $1 million or who have earned over $200,000 for the last three years.
Congress is still concerned about CROWDFUND, or Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure, and so Title III of the Jobs Bill, which proposes to open the world of equity crowdfunding investing to the vast sea of middle-income investors, is still waiting on regulations.
While both political gridlock and concerns about fraud are continuing to delay progress on the issue, Phoenix business attorney, Brian Burt of Snell and Wilmer, says that when equity crowdfunding becomes a reality, it will have a "huge impact." He adds that you will see companies become very appealing to the average American who has $1,000 or $5,000 to invest. We will need to look at the rewards base crowdfunding to see what will happen, as these are people raising millions of dollars without giving any equity. If they can do that level of capital formation without even giving a potential for return, Burt can only imagine what would happen if one would actually get a few shares in the company. "The potential is huge if we can just get to the finish line in terms of the regulations," Burt says.
Brian Burt of Snell and Wilmer, spoke with Alternative Investing News, providing online alternative investing video news content. Alternative Investing News is a featured network of Sequence Media Group. This video was brought to you by Vantage Self-Directed Retirement Plans.