On April 5, 2012, President Obama signed into law the Jumpstart Our Business Start-ups Act (JOBS Act). In an unusual act of cooperation in Washington, this legislature was eagerly supported by Democrats and Republicans. While the JOBS Act will result in significant changes to U.S. securities law, the impact on small businesses and start-ups can be revolutionary. For the first time, entrepreneurs will be able to Crowdfund – that is raise equity, debt, or other securities, by selling these offerings online. Depending on the exemption, to both accredited and non-accredited investors.
You’ve heard of Crowdsourcing or pre-sales (or pre-commerce) websites like Kickstarter and Indiegogo. The intention of these portals is also to bring capital to investors, but business owners are limited to offering goods, services and intentions in exchange for investment. Business funding opportunities are offered among artistic, charitable and sometimes uncategorizable projects. Some amazing ventures have been funded through Crowd Sourcing, but many investors are looking for returns on their money and would rather own shares of a business than receive a pre-order for a product. From the perspective of the business owner, selling shares of their company creates a long term relationship that may lead to access to ideas and additional capital.
In the US, JOBS Act is now law. This law enables three different forms of crowdfunding including Reg CF, Reg A+ and Reg D 506c.
Crowdfunding is a global phenomena. Internationally, online capital formation has taken many different forms. This sector of finance will continue to morph and change, most recently with the advent of digital assets, but the disruptive shift of leveraging the internet to raise capital, and more, is here to stay.