New Law Moves the US from Crowd Funding to Crowd Investing (Which Is Much Better)


By now everyone is familiar with crowd funding through websites like Kickstarter and IndieGogo. A new US law (that will hopefully be echoed everyone else soon) allows for crowd investing, or micro investing. That is good news for creative projects and small businesses of every description.

From the Hollywood Reporter:
"The change is coming courtesy of the Jumpstart Our Business Startups Act, which President Obama signed into law in April 2012 with the hope that removing some Depression-era restrictions on how fledgling businesses raise money could boost the economy. The first of the new rules is set to go into effect Sept. 23, and several players are gearing up for them. While Kickstarter has no plans for equity crowdfunding, rival Indiegogo does. It will have competition from upstarts EarlyShares, Crowdfunder, Slated and several others. Here's how it works: Now, startups are required to pitch investment opportunities to individuals rather than broadcast them to the masses. But Title II of the JOBS Act allows those seeking money to advertise investment opportunities on TV or via Facebook or Twitter -- wherever, including at crowdfunding sites."

That means that, rather than getting t-shirts or posters or other rewards, people will be able to make small investments in companies, technologies, films or other projects that they find interesting. The law does fall short though in one very important way.
"Potential investors must be "accredited," defined as an individual (or married couple) with a net worth of $1 million excluding their primary residence or an income exceeding $200,000 in the two most recent years ($300,000 for a couple). Under those rules, about 9 million Americans qualify. "It opens up access to a lot of capital for filmmakers," says Jason Best, co-founder of Crowdfund Capital Advisors. "There's a lot of people who are passionate about film but can't make one themselves, but they want to be a part of one. Soon, they can."

Without this limit the new micro-investing law would have substantial benefits for entrepreneurs, artists, individuals and communities. Allowing small investors to buy a 'share' in a project would relieve fund raisers from the obligation of creating tangible rewards, it would allow working people to make small investments in projects they cared about, it would give investors a personal stake in the success of a project and it would allow communities to create local businesses that they felt were lacking.

For example, an inner city community could establish a book shop or grocery store funded by small investments and supported by a community that has a, very real, sense of ownership. Local communities could also fund documentaries on important issues and events that they felt needed greater attention or lend their support to promising local artists. They can, through crowdfunding, do some of these things now but a t-shirt or bumper sticker does not create the same sense of ownership that a financial investment does.

The new law is a good step. The US has more than its share of millionaires and some of those will, no doubt, help to fund projects. Being a millionaire though should not be a pre-requisite to investing in projects and businesses you care about.
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