Recently, while reviewing the Finance Section of a popular small business site, I realized the vast majority of the most recent articles were about “crowdfunding”. This is understandable given how the 2012 JOBS act revolutionized the way entrepreneurs are able to seek capital for their venture. Heck, I’m even guilty of doing the same; I’ve written no less than about 4 posts about crowdunding in the last six months! But given the vast benefits that will be available to entrepreneurs, this issue is totally worth all the attention it is currently receiving.
Before we get into the benefits of crowdingfunding, however, as Matthew Toren wanted you to know that not every platform that allows for crowd contributions can be deemed “crowdfunding”. For example:
- Microfinance: This like crowdfunding “connects individuals with money to entrepreneurs who need funds to expand and grow their business”. The difference is that it primarily provides interest free loans (that must be repaid) to small businesses in developing countries. Unlike crowdfunding, at its heart, microfinance has a social improvement purpose. Kiva is one of the more popular microfinancing platforms.
- Crowdsourcing: This is totally different from crowdfunding. “It’s [mainly] about sourcing and sharing in the benefits of knowledge, instead of funding.” Think of sites like Wikipedia where people get together “for the improvement of ideas or projects. It’s the idea that the community, the whole, is better and can accomplish more than the individual.”
Though we provided a general overview of equity crowdunding (along with other investment options) in my July 29th post, Toren explains that the main advantage of the 2012 JOBS Act was that it demolished the previous barrier to getting investment – the restriction against general solicitation. Because of this, some of you can take advantage of crowdfunding now! (No need to wait for SEC finalized rules)
1. Need loans to fund your business at a lower interest rate than offered by your local bank? Then Lending Club might be a great option for you.
2. If you are someone who is seeking large investors and have fulfilled all the filing requirements required by SEC Rule 506, you don’t necessarily have to perfect your “Shark Tank” pitch. There are crowdfunding platforms out there that are geared towards helping you.
3. If your business is focused on making investments and you are an “accredited investor” then you can now find many opportunities available to you. (AssetAvenue allows you to investment money with others to fund notes on commercial real estate; you can also become a Lending Club investor.)
The best point Toren makes is that the JOBS Act (with the aid of technology) is quite literally putting your investment options in your hands. He compares it to how Expedia, Travelocity & Orbitz revolutionized traveling. If that’s the case I’m ready to go – are you?
