Getting Investment for Your Startup: Is Crowdfunding an Option?

Getting capital for a small business or startup is consistently ranked the #1 challenge facing entrepreneurs. The Obama campaign in 2008 was able to raise large amounts of money through lots of small donations, and was able to outfundraise the well-heeled oil industry-backed Republican party for the first time in history as a result. Can you tap into this new “crowdfunding” trend to help your small business get the capital it needs?

Crowdfunding gives small businesses the opportunity to ask for small amounts of money from a wide variety of people, without becoming beholden to one powerful stakeholder.

According to Cutting Edge Capital,

In most cases, your investors will be your customers, community, colleagues, and friends. There may also be affinity groups for your product or service that would be interested in investing in your business.

It sounds terrific–you can raise capital for your small business from groups of people that already like your product, become more invested in the success of your business, and help you to push forth with your sustainability mission. However, it’s complicated–laws designed to protect investors make that challenging to some degree. The two main issues, according to Sherwood Neiss, are fraud and investor protection. Neiss is heading up a campaign for an SEC regulatory exemption covering public securities offerings with individual investment much higher than the $100 exemption promoted by the Sustainable Economies Law Center.

A couple of things to consider:

• Wall Street banks, venture capital and private equity fund only 2.7% of all entrepreneurs in the U.S.
• Laws set up for regulating investment were set up in the 1930s, defining what “friends and family” meant (and allowing certain exemptions for investment).
• Technology and social media have completely changed the landscape of transparency for businesses.
• The financial spigot has effectively been cut off, with predictable results for the U.S. and global economy.
• Companies nowadays are increasingly including social responsibility and Triple Bottom Line principles into their strategy.

Neiss has set off to change crowdfunding laws to represent modern realities. Check out StartupExemption.com for more information and to be added to their list for their upcoming conference on crowdfunding. In addition, the group recently gave testimony before Congress, and has a proposal to the Securities and Exchange Commission in the works. If you want to participate in the process, you can submit your comments to their proposed framework as well.