Congress approves Start Up crowdfunding bill; 22 Crowdfunding sites to apply to now
Today, the Senate passed its version of the Jumpstart Our Business Startups (JOBS) act, which helps small start ups raise capital by supporting and authorizing crowdfunding, a process of raising money. Instead of seeking out angel investors or venture capitalists, crowdfunding enables individuals, collectives and startups to gather donations or microinvestments in their product, project or service.
The Senate sent the bill to the White House for President Obama’s signature. The House passed its version and does not object to the president signing the Senate’s version. The White House supports the bill and is expected to finalize this uncontroversial bill. Last week, the New York times had teed up an article questioning which of the bills would ultimately get the final approval.
- The law enables companies to raise up to $1 million a year through crowdfunding which is the 21st century digital take on traditional venture capital funding.
- Each investor would be limited to $10,000 or 10 percent of annual income, whichever is less. The Senate’s version of the bill lets people with a net worth under $100,000 to invest 5 percent of their annual income, or $2,000, whichever is greater to a company. It also loosens the ability for wealthier investors and enables them to invest 10 percent of either net worth or income, up to $100,000 towards a start up.
- The bill would create a new class of companies labeled as “emerging growth companies” that would receive relaxed rules under the Securities and Exchange Commission (SEC). The bill would also end an SEC ban on small-company advertisements to solicit capital; increase the offering threshold from $5 million to $50 million before SEC registration is required; raise the shareholder registration requirement from 500 to 1,000 shareholders; and increase the number of shareholders allowed to invest in community banks from 500 to 2,000.
There are several crowdfunding websites that enable networks of friends, colleagues and like-minded individuals pitch in to fund entrepreneurs.
On AngelList.co for example, start ups provide a detailed project description, which could be considered a loan or donation. Those startups then spread the word to their contact list about their request.
The majority of crowdfunding sites fund entrepreneurs on an all-or-nothing basis. If the project is fully funded when the deadline arrives, the money is given to the entrepreneur. If it is not fully funded, it is returned to the donors to keep or donate to another project. So it’s important to have a compelling project or story and to be a skillful marketer and networker to ensure that word about your project reaches enough potential donors to fully fund the project before the deadline. If you’re confident that your social enterprise has what it takes to become a crowdfunding success story, you may find crowdfunding to be the perfect option for your fundraising efforts.
With this bill on its way to becoming law, enterprising start ups are now free to start researching and placing their companies on various crowdfunding sites for consideration. Here is a list of crowdsourcing sites to consider using now that this law is well into being finalized. I will be signing up my projects as soon as possible.
- Start Some Good
Management of Money has a massive lists of dozens of crowdfunding sites to consider.
Below is an infographic that explains how crowdfunding works and the pros and cons of it, compliments of intuit.