Under the recently signed Crowdfund Act entrepreneurs will be able to post their businesses on SEC-registered Crowdfund Investing Portals. Local consumers and investors (or anyone across the country who may be attracted to the business) will have the opportunity to evaluate and fund established local businesses and startups. (Historically most startups that get funded in the Bay Area are biotech, IT or social media startups. But, over 70% of all startups are local consumer product or services businesses that, until now, have had very limited sources of funding.)
Possibly the most important beneficiaries will be established local businesses that have had their expansion plans frustrated by a lack of lending from banks. Crowdfunding could become an extraordinarily important source of expansion funds for popular local businesses, benefiting our local economy significantly.
The Portal
Using Crowdfunding Portals, registered and approved by the SEC, investors will be able to evaluate the entrepreneur, the business model and the investment opportunity in an open manner with other members of the community. Each offering must have a funding target amount and until 100% of a funding target is met, no money will be transferred out of escrow.
The Investor
Under the Crowdfund Act investors will fall into two categories. Investors who earn less than $100,000 per year will be limited to 5% of their income or $2000, whichever is less. Investors earning over $100,000 per year will be limited to 10% of their income up to $100,000, whichever is less.
More Startups and Successful Businesses - More Jobs
The majority of new jobs in the U.S. have come from small businesses that are less than five years old. The Crowdfund framework will allow friends, family, customers, and supporters to invest small to not-so-small sums in local businesses. Each business can raise up to $1 million in any 12 month period, and much of the capital will likely go directly into hiring local people and the purchase of local products and services.
More Successful Enterprises
The Crowdfunding platforms can lead to more community investing and more successful local businesses. Local consumers and investors will have a vested interest in the success of these entrepreneurs, resulting in more transparency and, most likely, stronger management.
