In the Spring of 2012, Obama signed the act that is responsible for changing the entire crowdfunding platform landscape. Until April 5th, 2012, a small pool of existing crowdfunding websites were allowed to operate on a donation basis, essentially providing a discount, product or an enticement in exchange for monetary funding. But with the introduction of the JOBS Act (which is an abbreviation of Jumpstart Our Business Startups), the ability for laymen to receive equity from the companies in lieu of funding is now a possibility.
The Securities Act of 1933 suggests that the entities can’t offer their securities to the public. However, it is really unfortunate to note that the crowdfunding exemption that is introduced under the JOBS Act, Section 4(a) (6) of the Securities Act won’t come into effect unless the SEC issues the regulation, because it offers the nation a real chance at not just economic recovery, but growth. The most common issue for entrepreneurs is that they find it tough to access financing not only because 98% of the time their business plans are rejected by the angel investors and the venture capitalists, but also because the US banks held $608 billion on outstanding loans during 2011. Financial analysts are of the opinion that with the present state of the recession and the country’s economy, crowdfunding could be a huge asset for the nation as the portals could serve as one of the greatest vehicles for investing in small business firms. These small businesses are actually accountable for creating 65% new jobs.
Crowdfunding is a tool that offers entrepreneurs the chance to connect with a pool of people through social networking websites and ask them to donate towards a funding target that has previously been established. With the addition of equity as the biggest potential option in the crowdfunding space, there has been extra spotlight on crowdfunding. Business-savvy individuals can dream of becoming one among the original seed investors for companies that could become the next Facebook, Dropbox or Airbnb.
There are some critics who feel that crowdfunding is actually risky for the average American. But such critics need to be aware of the fact that the Americans usually purchase $45 billion dollars of lottery tickets every year and the households spend $150 annually on those purchases. The odds of winning the lottery are not favorable, so (by turns) the stock market odds actually look a bit brighter by comparison.
If you’re a big fan of investor protection, you may see the benefits of crowdfunding. The US Securities Exchange Commission has taken a unique step forward to enhance the possibilities for start-ups and investment funds.
By Andrew Jackson, financial counselor for over 4 years. He analyses people’s financial situations and advises on different debt relief options. He also helps people manage their budgets through free counseling.