By: Susan VanEpps
Last month, the president signed the Jumpstart Our Business Startups bill into law. The JOBS Act will give small businesses more access to capital by allowing online fans, friends and followers to become stockholders in your company.
The way online crowdfunding currently works, you have to give gifts or “rewards” to donors. The JOBS Act will allow you to offer stock in your business in exchange for investment.
How Crowdfunding Works
As ProFounder President Dana Mauriello explained to StartUp America, “Crowdfunding is a concept that’s been around for a long time. It’s the idea of passing around the basket.” She added that crowdfunding allows a group of people “to contribute small amounts, which in aggregate meet the financial goal of any organization, group or individual.”
The way crowdfunding generally works now is, you raise money for specific projects (not general operating expenses), and you give backers tangible items or services in exchange for funding.
Take Kickstarter as an example. To raise funds on this popular crowdfunding website, you have to submit an application. If it’s accepted, Kickstarter will feature your project on its site, along with images and video provided by you. You specify how much money you need for your project, and you have a maximum of 60 days to raise that amount in pledges. If you meet your goal by the deadline, you get the money (and Kickstarter gets five percent of the amount raised). If you don’t get enough pledges, you don’t get the money.
In exchange for funding, you have to offer your backers “rewards,” such as one of your products, or limited-edition t-shirts, event tickets, special music compellations, ebooks, etc.
With the new JOBS Act, you’ll be able to offer equity in your company in exchange for funding. The return on investment is potentially much greater for the early adopters who’ll find your business on crowdfunding sites. Ideally, they’ll also become brand evangelists for your company.
The new system won’t be in place until early next year however; the Securities and Exchange Commission must first complete its 270-day rule-making process. Until then, learn more about crowdfunding here: