Wednesday, May 30, 2012

Crowdfunding and the JOBS Act...

Last month, a significant piece of legislation passed through gridlocked Washington by a 73-26 Senate vote and a 380-41 House vote, and was then signed by President Obama.  The fact that this even occurred at all is a grossly under-reported story, however what is even more significant about the JOBS Act is how it has brought the spotlight onto the recent phenomenon of "crowdfunding".

Crowdfunding is a process where various individuals scattered over the Internet collectively pool their money together to invest in new enterprises - potentially turning anyone into an angel investor for as little as the price of a Starbucks coffee.  One of the primary goals of the JOBS Act is to make it easier for startups and small businesses to raise funds in this way.

As profiled in Forbes, Tanya Prive of Rock the Post describes it as saying...

Simply, the JOBS Act will make funding more accessible for startups by allowing non-accredited investors to participate in the funding rounds, and this alone, I believe will be the main factor driving the increase in new companies being founded. And with new companies comes the need to hire staff. Without a doubt, this will help the current unemployment rate.

Rory Eakin of CircleUp added...

Currently, less than one percent of U.S. small businesses receive Angel investments. By opening up restrictions around general solicitation and introducing crowdfunding… these investments create up to six jobs per investment.

But this isn't to suggest that the JOBS Act was completely a political no-brainer.  Some skeptics view the Act's deregulation of crowdfunding, which makes it far easier to raise funds from ordinary individuals, as tantamount to what led to the financial crisis of 2008.  Chuck Jaffe of the Wall Street Journal's Marketwatch wrote this scathing headline:  "JOBS Act benefits financial criminals:  Congress declares open season on small investors".

So is it something ripe for abuse that makes it easier to victimize ordinary individuals, or is it empowering those same individuals by enabling them to invest in startups at an early stage where they previously were unable to get in the ground floor?

Perhaps the answer lies in the fact that this bill received a bipartisan filibuster-proof supermajority vote in a Senate where anything getting passed in a major achievement.



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