What entrepreneur doesn’t need a little seed money? If you are like most business owners, you’ve thought about seeking investors for some much-needed startup capital. One relatively new method of obtaining small amounts of money from a large number of investors is called “crowdfunding.” However, until recently, raising money from crowdfunding was thought to potentially run afoul of securities laws. (Hint: You don’t want to do that!)
Earlier this month, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”). It’s a collection of laws that dramatically relaxes regulations on finding investment dollars for startups. The JOBS Act seeks to encourage entrepreneurship because most new jobs are created by small businesses. In fact, between 1993 and 2009, 65 percent of new jobs in America were created by small businesses, not large ones. The new law’s backers think it could be the impetus for an economic boom.
The old law’s most confounding restriction for small business entrepreneurs is the prohibition on public solicitation for investors. Public solicitation is any form of advertising or approaching strangers. Until now, the law required a “pre-existing relationship” between the entrepreneur and the potential investor. Unfortunately, it was not always clear how much of a “relationship” was required. These investors also had to meet certain net worth qualifications.
The JOBS Act allows businesses to raise up to $1 million in equity (think: slice of the pie) investments by soliciting the general public. This means the potential pool of investors will shift from 1 percent (accredited investors) to “the American people.” Putting it another way, you’ll be able not only to reach out to your customers and clients—the people who know your brand the best—for capital, but also strangers.
It doesn’t stop there. The JOBS Act also contains provisions that will allow for the first Internet crowdfunding. This is most promising for entrepreneurs who are social-media savvy. It makes everyone on your friends list a potential investor.
But the passing of the JOBS Act means that there will more competition for investment dollars. Investors will now have a lot of options. To remain competitive, revise your business plan, rework your pro-forma financials, and prepare your elevator speech. Harnessing the power of social media will be essential to finding investors. Consider uploading a short pitch video on YouTube, tweeting about it on Twitter and starting a Facebook page.
Entrepreneurs play a pivotal role in our country’s financial system. They are the sparkplug in our economy’s engine. It is their innovation, inspiration and imagination that have made this country great. The JOBS Act won’t guarantee investment, but helping entrepreneurs find the right investors at the right time is an important step. So, plant some seed money and watch our nation grow!