The crowdfunding revolution is upon us. Whether you’re talking rewards-based crowdfunding, donation, peer to peer lending, or equity crowdfunding, this financing option is growing into a stable and viable option for startups, entrepreneurs and businesses. But policies and regulation and its timing can make or break these opportunities.
Equity crowdfunding can become a great leveler, meaning that now everyone can have the same opportunity to be an early stage investor to future Facebooks and Googles of the world, help an average investor diversify their investment portfolio and spur innovative business models.
This does not come in without risk. Restrictions on soliciting investment from the general public were places to reduce fraud and only wealthy people, with a solid credit rating were able to invest in company shares not listed on the public stock exchanges.
Last year’s JOBS Act (Jumpstart Our Business Startups) in the United States intended to change this by making it easier for small time investors to invest in startups and ideas. The ruling has not been implemented yet by the Securities and Exchange Commission who is still working on policy and regulatory frameworks to put it in effect. But these delays are not stoping states like Georgia in the U.S. from trying to race ahead of the game, taking advantage of the federal law that allows states to regulate measures within their borders.
Georgia’s exemption fix is the Invest Georgia Exemption. Georgia’s exemption lets small, local firms raise up to $1 million by selling shares to only state residents. Georgia has followed Kansas by adopting these regulatory changes while North Carolina and Washington state are also considering crowdfunding laws.
These developments could in turn change the investment and startup ecosystem. We will soon see that pioneering government agencies that can pass timely regulations will be at the most advantage as they attract entrepreneurs and world attention. I can foresee competition between states and countries to create hotspots for innovation and new businesses and the emergence of a global platform to make equity crowdfunding investment opportunities to an available to an average investor.
Another key point is to think about how traditional banking systems will fit in this new financial ecosystem. Are these going to work for only traditional risk free business ideas and entrepreneurs with great credit? Would banks consider successfully crowdfunded projects for further funding? Most experts agree that there is room for everyone and that equity crowdfunding would not necessarily eliminate other methods of investors like banks, VC’s or angels, but actually help create more robust options for entrepreneurs.