Today is the day that the crowdfunding ecosystem in the US rejoices — more specifically startups and small businesses. President Obama will sign the Jumpstart Our Business Startups (JOBS) Act into law. The law allows non-accredited investors to invest in startups — which is also known as equity-based crowdfunding.
“Crowdfunding is a key component of the JOBS Act,” McHenry continued. “Economists predict the legislation will lead to a ten percent increase in new business startups, helping to create at least 170,000 jobs in the next five years. This bill is critical in getting our economy back on the right track.”
McHenry has not been the only supporter of the JOBS Act — the White House, Congress and Senate all support the bill. Congress passed the JOBS Act 380-41 and the Senate — after adding an amendment to protect investors — passed the bill 73-26.
Startups are a corner of the US economy. Unfortunately, securing capital is always a struggle. Why — because most startups fail. According to Shikhar Ghosh, a senior lecturer at Harvard Business School, in many cases the failure rate is as high as 95%.
And because of these sobering statistics traditional lending institutions, venture capitalists and angel investors are very cautious when investing in a startup or small business. Therefore the JOBS Act provides these businesses with a new source of financing.
“Crowdfunding is the antithesis of the financial practices of the last decade. There are no credit default swaps, leverage multiples, or obscure fund structures standing between company and investor. It is direct. It is personalized. Investors actively seek out the companies they believe in, evaluate the merits of the investment on a case-by-case basis, and make an investment.”
So is this it — is crowdfunding the silver bullet that will jumpstart our economy and significantly reduce our unemployment rate? I don’t know and I don’t think anyone really knows for sure. But I can tell you this — startups need financing and investors will invest.