By Grace Austin
President Obama and Congress passed the Jumpstart Our Business Startups (JOBS) Act in April 2012, a bipartisan law that became effective this January. This particular legislation was designed to encourage small business and startup funding by easing regulations and allowing for more capital investment from private citizens.
The JOBS Act further solidifies the emphasis placed on small businesses by both Republicans and Democrats. In essence, the JOBS Act allows businesses to accept small contributions from individuals, what has come to be known as crowdfunding.
One of the JOBS Act’s provisions is an annual investment cap. For those who make under $100,000, they can invest a maximum of 5 percent of their income, while those who make more than $100,000 may invest up to 10 percent. A startup can raise $1 million through the JOBS Act.
There are a few regulations as well: A company can only sell to investors through a middleman, like a website, that is registered with the SEC. The middleman can only sell shares that come originally from the company.
Crowdfunding is not a new phenomenon, but incorporating technology into the process is. (Micro-lending is a precursor, offering loans to individuals in impoverished nations to start their own businesses. The most notable instance is the Grameen Bank.)
Crowdfunding sites usually work like so: one posts a project pitch, offers a deadline, and specifies an amount needed to reach one’s goal.
In addition to financial support, companies may find other benefits from crowdfunding. Being able to test marketing strategies, promote products, and receive actual customer data are important added extras. Although crowdfunding needs a substantial time investment (using social media and uploading videos are common tools to draw in an audience), as the thousands of entrepreneurs that posted their product or project through crowdfunding websites and received successful bids can attest to, it can be worth it.
Kickstarter, by far the most popular and famous of the crowdfunding sites, was launched in 2009. The platform for creative enterprises has helped launch everything from video games to men’s underwear lines. Over 75,000 creative projects have been launched since Kickstarter’s inception, according to their website.
Fundable, the first equity crowdfunding platform, launched concurrently with the JOBS Act. Fundable typically raises small sums of money for startup businesses. Startups can pitch their company and raise funding via the website. As opposed to Kickstarter, Fundable also offers equity to potential investors.
With these new opportunities for investment and capital through crowdfunding, the government is hoping that more Americans will invest and be encouraged to start their own business. After all, according to the U.S. Department of Commerce, small firms represent 99.7 percent of all employers, and employ half of all private sector employees.