Over the past few months, I have selectively tuned out what happens in Washington. I hear the same old thing “We need more jobs” mumbo jumbo, yet it seems like nothing ever happens. I’m no expert on law, politics, or venture capital, but communities of entrepreneurs are very excited with the latest Crowdfunding bill that just passed through the US Senate (73-26 was the final tally).
What is Crowdfunding?
Crowdfunding provides a new way to finance a fledgling business using the power of the internet specifically. Entrepreneurs will be able to raise up to $1 million dollars per year (capped at $2 million total) through SEC-registered crowdfunding platforms (i.e. – CircleUp, Crowdfunder, WeFunder, etc.)
These investments have limits. If your income is under $100k/yr, you can invest a maximum of $2,000 dollars. If you make more than six figures, your limit is $10,000 dollars. Also, the new bill increase the maximum numbers of shareholders of a company before an IPO is required from 500 to 2000.
Room for Fraud?
Opponents of this bill state that the “deregulation” will increase the potential for fraud. It just so happens that Crowdfunding is legal in the UK, with CrowdCube reporting “zero fraud.” While I certainly don’t propose that fraud will never happen, I think it’s important to note that Crowdfunding is not rocket science, and is being implemented outside the US.
Community funded Startups?
I think this new bill has the potential to encourage the average person (with a little $$) to become more involved in a startup. For example, a neighbor may have a great idea, a solid prototype, and the brains to get the job done – I should be able to invest and be a part of his/her success (or failure.) Businesses start small, and a passionate group of early adopters has the potential to collaboratively bootstrap the company as it grows.
My brother and I are currently working on a startup, and we are in the midst of a business competition, with the winner receiving $5,000 dollars in cash. While this amount may seem minuscule, it’s the difference between a prototype and a fully operational business. Sure, we could apply for a small business loan, yet if Crowdfunding was in place, it would offer another vehicle to kick start our business.
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