Now that informal investors can crowdfund startups for equity, this could be a highly effective way to encourage a part of the economy that greatly affects employment and GDP.
The JOBS Act was signed into law in April of this year, and aimed to give more Americans the ability to invest in small businesses. By taking the lead of project-based crowdfunding sites like Kickstarter and Indiegogo, a wider variety of people can now have the opportunity to become “microinvestors,” who provide funds to startups and other small businesses through a middleman site that is SEC accredited. The law will not go into effect until January 2013, but sites like Fundable are providing the infrastructure to connect companies to anyone connected to the Internet. Their infographic traces out the effects of the JOBS Act, as well as the role of small businesses and crowdfunding.
Legislation is enabling a new business model for startups
The popularity of crowdfunding was viewed as a source for potential economic growth, and the government entered the scene in order to make it possible for this new revenue stream to be aimed at small businesses. While Fundable was launched to specifically serve startup businesses with reward and equity-based raises, some of the other crowdfunding sites are reorienting with the new legislation in mind. Indiegogo campaigns have funded small businesses and the arts, but according to Fundable, it may expand to offering equity, while arts, fashion and business-based RocketHub also is looking into the same. Kickstarter, however, has apparently no plans to offer equity.
Crowdfunding to impact the largest pool of employers and exporters?
Targeting small businesses as an area to increase growth is smart, since they make up over 99.7 percent of all employers and 97 percent of exporters. They create over half on non-farm private gross domestic product and employ about half of all private sector workers. Greater investment in this category is a highly effective target with all the employers and employees it could affect. According to Fundable, the public could invest significant cash that it currently treats as disposable income - “[if] Americans invested one-tenth of what they gamble per year, that would equate to $55 billion.”