Capitalizing On Financial Innovation – Part I: Preparing For The Crowdfunding Revolution
Since the passage of the overwhelmingly bipartisan Jumpstart Our Business Startups Act (the “JOBS Act”) on April 5, 2012, the curiosity of a revolutionary small business financing mechanism called, Crowdfunding (also referred to as Title III of the JOBS Act, “Crowdfund Investing” or “CrowdInvesting”), has intensified.
For those out-of-the-know, “Crowdfunding” is a process of raising capital, usually via the Internet, to fund a private venture by pooling small amounts of monies from multiple funders who share similar passions and ideologies. Crowdfunding is currently being utilized to finance charities, the arts, political campaigns and even startup businesses. However, laws dating back to 1933 have made it illegal for funders to receive securities in exchange for their investment. The S.E.C.’s implementation of Title III of the JOBS Act will ultimately legalize “CrowdFund Investing,” thereby allowing today’s investors, who are starving for yield, the opportunity to invest in the smaller private companies that are willing to provide it.
Because conventional financings are no longer viable options for small businesses, many have been desperately seeking alternative methods for accessing capital. “Crowdfund Investing” is rapidly emerging as a promising solution. Although most industry experts don’t foresee “Crowdfund Investing” legally employable until at least 2014, companies interested in ultimately employing the “Crowdfund exemption” should begin making preparations now in order to help ensure a successful offering.
