This article originally appeared appeared May 17, 2013 in Business Horizon Quarterly, with the headline Crowdfunding: The Everyman Investor, as well as on Forum for Innovation. It has been republished here with permission from the U.S. Chamber of Commerce.
By Benjamin Miller
Crowdfunding Will Transform Finance Forever
While most politicians and pundits see last April’s Jumpstart Our Business Startups (JOBS) Act as only an incremental deregulation of small-scale fundraising, it actually has the potential to transform the entire financial system. Called crowdfunding, the JOBS Act, once promulgated, will allow a company to solicit publicly for funds from individuals in return for equity or debt, which fundamentally changes the business norms of private markets. This will open up the finance industry to the ruthless, dis-intermediating power of the Internet.
Under current securities regulations, investment crowdfunding is essentially against the law. If you wish to raise money for your company, you cannot declare it publicly. In legal terms, such a public declaration would be a “general solicitation.” This is forbidden unless the company first files an offering with securities regulators, such as the Securities and Exchange Commission (SEC), which is an extensive, multi-month endeavor.