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Saturday, September 14, 2013

Crowdfunding and the JOBS Act legislation: A step forward

Crowdfucing offers entrepreneurs an opportunity to finance business ideas
The JOBS Act allows companies to solicit public funding
By Todd Smith

There are plenty of brilliant, eager entrepreneurs out there with ingenious ideas for start-ups that have been thwarted by funding struggles. That’s because no matter how amazing your business concept may be, it won’t get off the ground without sufficient resources – and resources tend to cost money. Luckily for budding businessmen and women across America, new legislation is paving the way for an effective financing option – equity crowdfunding.

What exactly is crowdfunding?

Crowdfunding is actually derived from a similar concept called crowdsourcing, where an individual attains a goal by soliciting and receiving backing from various different outside parties. The term crowdfunding applies directly to the collection of funds from a number of outside investors in order to back a specific project or business idea.

This funding technique of selling small shares of equity to groups of investors has proved invaluable to many small businesses and entrepreneurs who would not be able to secure financing through more conventional routes.

What is the JOBS Act?

The Jumpstart Our Business Startups Act (JOBS Act) was signed into law by President Obama on April 5, 2012. In a nutshell, its primary aim is to help small businesses receive funding for their ventures by loosening certain securities regulations. The act was supposed to open a shining door of opportunity for American entrepreneurs.

Where does the JOBS Act currently stand?

When the President signed the legislation into law back in 2012, the U.S. Securities and Exchange Commission (SEC) was originally given a calendar year to hammer out the regulatory details for its implementation. Much to the frustration of those awaiting the legalization of equity crowdfunding, the SEC has dragged its feet on the JOBS Act. The deadline of April 2013 came and went and the SEC had still not addressed a large bulk of the Act, including much anticipated Titles II and III.

Fortunately for the patiently waiting entrepreneurs and investors, some progress has finally been made by the SEC. Many suspect that this movement forward was a result of a recent shift in power – Mary Jo White took over as the new chairman of the SEC earlier this year.

The SEC voted on Title II of the JOBS Act and it passed 4-1. The passing of Title II means that businesses can now use the strategy of public solicitation when seeking funding. Basically, a given company is allowed to announce to the general public that they are actively seeking financing. This gives businesses the opportunity to use equity crowdfunding and advertise their venture to accredited investors through a variety of platforms.

Although businesses cannot do this just yet, the passing of Title II makes it very possible that soon companies using equity crowdfunding will be able to appeal to investors outside of the immediate accredited investor network. Imagine if the power and potential of crowdfunding were taken to popular social media platforms like Facebook, Twitter, Vine, and LinkedIn.

The recent moves by the SEC concerning the JOBS Act may seem small, but they strongly suggest that we will see more progress in the near future. Entrepreneurs still have the passing of Title III to look forward to which would allow participation in equity crowdfuding for non-accredited investors.

Of course, if the remaining portions of the JOBS Act do indeed gain approval, we may experience a “flooding” of the small business market, creating chaos and stiff competition. Want to stay ahead of the pack? Speak with a business plan consultant about the strategies that will set your business up for success in the post JOBS Act world.

About the author: Written by Todd Smith of Blue Horizon Venture Consulting, the leader in fundable business plan packages. See him as a speaker/Panelist at the 2nd Annual Crowdfunding Conference Oct.14-16.

* Image license: woodsy; RGBStock royalty free