Can Crowdfunding Help My Startup Business?

If you’re starting a business, a primary roadblock is probably the issue of raising money. In the old days, fundraising was a tiresome process that involved soliciting potential pools of investors, making cold-calls, and doing whatever it took to attract attention – even if it meant selling mattresses.

crowdfuning for startupsWith crowdfunding, you can now start your own business simply by asking your Facebook friends and other Internet users to make small donations to your business. To encourage donations, you can offer awards or promise a share in the value that the business creates.

The 2012 JOBS Act, which stands for Jump Start of Business Startups, has made crowdfunding more advantageous than ever. The JOBS Act exempts crowdfunding from the strict registration requirements of the Securities and Exchange Act of 1933 of the Securities Exchange Commission.

Now, a potentially limitless number of individuals lacking accreditation can invest their money in your startup!

It is helpful to consider what the Act does:

  1. It imposes limits on how much a crowdfunder can invest and on the amount a startup owner may raise in a year to one-million dollars. This represents a compromise to having no regulation at all.
  2. It imposed disclosure requirements, but otherwise the details were left to the Commission’s administrative rule-making process.  The Commission reserves the right to shape policy in how the rules are applied to crowdfunders.

How Does the Act’s Loosening of Requirements for Crowdfunding Benefit Startups?

The Act now allows the Commission to permit relatively inexperienced investors with modest savings to help support highly risky startups. If you were once a startup that would normally receive large investments, you can now establish yourself with the help of many crowdfunders.

This benefits the market as crowdfunders have greater options to choose from when it comes to supporting small-scale business innovation by startup owners lacking traditional support of high-profile venture capital firms.

Critics of the changes in the law point out that there is a limitation of the amount that crowdfunders can contribute in a twelve-month calendar year. They also point out that the full-disclosure requirement of crowdfunders indicate a distrust of crowdfunding among regulators as a legitimate way for a start-up to raise funds.

Athough the Act may not be perfect, it does allow crowdfunders and startups to work together in a constantly growing and changing marketplace.

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