Crowdfunding of companies begins rolling out
Much of this blog’s focus on local economies has highlighted the regulatory hurdles that limit opportunities to invest in small local companies. An element of the 2012 JOBS Act is opening some of those doors: crowdfunding mechanisms are being adapted to accept investments in businesses, an exciting expansion from their current role as channels for donations to worthy arts projects or pre-orders of new products.
Time Magazine recently covered the first stage of of this new avenue for funding businesses:
For now only accredited investors—people with $200,000 in annual income or a $1 million net worth—are eligible to fund startups. However, another provision of the JOBS Act to be implemented in 2014 will open up startup funding to all. A new crop of equity-based crowdfunding portals that function similarly to Kickstarter are emerging to connect would-be investors with startups seeking money.
One such website, WeFunder, is already accepting money from accredited investors. Mike Norman, co-founder of the site, says this new approach to venture funding will eliminate inefficiencies he associates with courting venture capitalists and angel investors through in-person meetings. “A lot of this is about their investor experience,” he says. “We’re going to have the ability for everyone to get involved in helping out a company or a startup that they think is really important to get off the ground and be successful.”
The current limitations on speculative investment in companies not listed on stock exchanges dates from the time of the Great Depression, when too many people were hoodwinked by scammers. The new direct investment channels will aim to avoid such nightmares by limiting anyone with annual income of under $100,000 to investing no more than $2000 or 5% of their income (whichever is greater) in any given year.
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