The JobsAct, signed by President Obama earlier this year, will dramatically change the nature of early-stage funding.
With buzz from fundraising websites like kickstarter and Indiegogo, equity crowdfunding is a welcome player. Under the new legislation, the typically small round of capital (in terms of dollar amount and number of participants) that flies under the regulatory radar for most startups has been expanded to $1 million annually, with similarly limited oversight from the Securities and Exchange Commission.
Why does this round of capital, which I call “friends, family and fools,” exist? Because early-stage money is essential to entrepreneurs armed with only an idea, their good name and their work ethic. When those are the only assets in your arsenal, you aren’t much of a hot commodity to professional investors. Who better to fill that round of good-faith capital than the people who know you–the friends, family and (occasional) fool?
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