It’s either a step toward democratizing investment or an invitation to fraud. Take your pick.
“Crowdfunding,” a Web-powered money-raising technique pioneered by charities and arts projects, is moving into the world of business.
It soon will emerge as a potential vehicle to finance small firms, a prospect that interests people such as Juli Kaufmann, one of the founders of Fund Milwaukee, a recently organized group seeking to improve the community through local investment.
“This is an incredible new opportunity that we otherwise didn’t have access to,” Kaufmann said last week.
Crowdfunding is the buzz-generating provision of a piece of legislation passed by Congress in a rare show of bipartisan spirit and signed by President Barack Obama on April 5.
Dubbed the JOBS, or Jumpstart Our Business Start-ups, Act, the new law eases restrictions on how small firms raise money.
They’ll be able to go public without clearing all the usual regulatory hurdles, and they’ll be able to sell equity to “nonaccredited” (read, nonwealthy) investors.
That typically has been forbidden, and some people think it should remain that way. But others see a new world of finance opening that will give ordinary folks a chance to buy into promising opportunities and provide capital to firms that are too small or too plain to interest angels and venture capitalists.
In crowdfunding, many people make relatively small investments that collectively amount to serious money.
The new law limits how much any one investor can funnel to any one company. For someone making less than $100,000 a year – that’s four out of five American households – the cap is $5,000.