Article in Tech Industry category.
The CROWDFUND Act Opens the Funding Floodgates for Startups
The US Senate has officially passed the CROWDFUND Act, which, through the JOBS Act, will equip startup companies with a new, legal avenue for funding…
The US Senate has officially passed the CROWDFUND Act, which, through the JOBS Act, will equip startup companies with a new, legal avenue for funding their investments. The act allows startups to use SEC-approved crowdfunding sources to receive contributions directly from people like you and us.
When traditional investors fail to be of service to startups, crowdfunding is the most significant alternative option they have to raise a significant amount in order to fund their businesses. Through the act, startups and small businesses can garner as much as $1 million annually through crowdfunding alone. It may not be enough to sufficiently fund the entirety of kickstarting a company, but the crowdfunding campaign will certainly become a benchmark and measure of popularity.
So, what exactly is the “traditional” way for a startup to get funding? For startups seeking to find that essential monetary boost, there exists rather steep obstacles to get through. Before the bill was passed, small issuers raising $2 million or less were mandated to adhere to SEC regulations that required them to register deals with the SEC and perform those deals through licensed brokers. The new crowdfunding bill will exempt would-be entrepreneurs, startups, and small businesses from this process and thus empower them to gain capital more directly from everyday citizens who desire to support them.
The bill will consequently help to avoid the costly and time-consuming SEC regulations that often lead to stunting and stagnation of company growth. The added bonus for startups that can benefit from the bill is the opportunity to raise money on crowdfunding portals in exchange for equity, as opposed to merely soliciting donations.
There are those who justifiably stand behind the passing of the bill. They believe entrepreneurs and small businesses truly have the ability to create economic growth and have an overall positive effect on the American economy. What’s more, the bill allows for the public, AKA “the crowds”, to actuate both the products and companies they support.
But in spite of this ideology, there are those who remain apprehensive, with understandably good reason – investors that lack the savvy necessary to make wise investments run the risk of being scammed. Hence, there must be solid regulations weaved into crowdfunding portals that can ensure investor protection, not to mention to educational resources pertaining to both the risks associated with investing in startups and the illiquidity of such investments.
Mandatory rules needed to avoid fraudulent activity should certainly be put in place, but they should not impede on the agency of startups to steadily increase their business growth. If a golden balance of regulation is placed on crowdfunding portals, it should be exciting to see how sprouting startups decide to not only take full advantage of this act but also indirectly help to fuel the economy. The crowdfunding bill can arguably be acknowledged as a positive effort to democratize capital in the US, making a little more room for new market players.