The Coming CrowdFunding Revolution for Equity Funding

by MIke Shapiro

There is a revolution coming in the way companies raise money.  This revolution will be driven by Crowdfunding websites and recent changes in securities laws.

Up until now, it has been against the law for start-ups and small businesses in the U.S. to make a public announcement that they are looking for investment capital and/or raise equity money directly.

Companies wanting to sell their stock or raise equity capital had to work through a venture capital firm, private equity firm or investment banker

However, as a result of the recently enacted newJobs Act, the ban on general solicitation will be lifted, and start-ups who file with the SEC can now solicit openly both online and offline.

This is a huge disruption in the investment banking process and a massive opportunity for companies looking for a faster, more economical, less restrictive way to raise equity capital. By 2025, the 
Global Crowdfunding Market could reach between $90 billion and $96 billion — roughly 1.8 times the size of the global venture capital industry today, according to a 2013 study commissioned by the World Bank.

There will be many important advantages to Crowdfunding powered equity funding. But the bottom line is that companies will be able to use the power and reach of the Internet to quickly identify and pitch more investors, thereby reducing the time and cost of raising equity capital. These changes will be earthshaking but unfortunately, companies will have to wait a few months until the law is fully enacted. 

The Securities and Exchange Commission recently released a rule making agenda revealing that it plans to finalize the Title III Equity Crowd funding rules and the Title IV Regulation A+ rules from the JOBS Act by October 2015. Given that these rules will then require 60 days to be published in the federal register and become law, it appears likely that the earliest date small businesses will be able to utilize these JOBS Act provisions to raise capital will be the beginning of 2016.

What is Web CrowdFunding?

January 21,2014 - by Mike Shapiro

"Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people, typically via the internet.

[1] One early-stage equity expert described it as “the practice of raising funds from two or more people over the internet towards a common Service, Project, Product, Investment, Cause, and Experience or SPPICE.”

[2]The Crowdfunding model is fueled by three types of actors: the project initiator who proposes the idea and/or project to be funded; individuals or groups who support the idea; and a moderating organization (the "platform") that brings the parties together to launch the idea.

[3]"In 2013, the crowdfunding industry grew to be over $5.1 billion worldwide."

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