The Jumpstart Our Business Startups Act (called the JOBS Act) was passed with support from Republicans and Democrats alike and signed by President Obama in April 2012.
In this article, I will give you an overview of the JOBS Act and most specifically its potential for equity-based crowdfunding, and give you an update on what's occurred since April.
[And for a little trivia, the term "the skinny" as used in my title was coined during World War II. During the war and for years thereafter, military orders in the Marine Corps were copied on paper that resembled the skin of an onion. It was extremely thin and fragile, and translucent in appearance. Orders written on them were referred to as "the skinny."]
The JOBS Act makes equity-based crowdfunding much easier
The JOBS Act makes it possible to raise funding from investors and donors through certain crowdfunding sites in exchange for equity in your company.
If you have tried to raise funds in the past by going a public offering, you'll know that it's expensive. Being able to bypass this is huge, especially if you are raising smaller amounts of funding.
The passing of the JOBS Act also means you won't have to seek out accredited investors specifically (people with incomes of $200,000 or more, or a net worth of $1,000,000 or more-not including their residence). You can receive funds from people of all income ranges, which makes the pool of potential investors MUCH bigger.
What's happened since April
When the JOBS Act was past in April, the SEC (Securities & Exchange Commission) was given until January 1, 2013 to propose the specific terms by which equity-based crowdfunding would operate.
For example, the SEC wants to make sure standards are in place with regards to how much money individual investors can invest (e.g., what portion of their annual income), the type and amount of information companies must show prospective investors, how to monitor the amount of money raised by individual companies, measures to protect against fraud, etc.
However, with just a couple weeks left before January 1, the SEC has not come to an agreement on how things will operate.
One key event which is probably both good and bad is that current SEC chairman Mary L. Schapiro announced last month that she will step down this month. Elisse Walter, one of the agency's commissioners is expected to fill the position. The bad news with regards to this changing of the guard is that it will most likely slow the finalization of equity-based crowdfunding laws beyond January 1st. The good news is that once Walter takes the helm, we can expect the SEC to come to decisions more quickly.
Massive Spike in Crowdfunding Websites
In January 2012, according to the North American Securities Administrators Association, there were less than 900 websites whose names included the word "crowdfunding" in them.
Today, there are nearly 9,000 of them. So, once equity-based crowdfunding laws are set (probably within a few months), there will be many, many websites upon which entrepreneurs will be able to raise crowdfunding dollars.
Preparing for Crowdfunding
Whether you want to raise crowdfunding today via rewards-based crowdfunding, or wait until 2013 for equity-based crowdfunding, here are some things you can do:
1. Broaden your network: the key to Crowdfunding is marketing; the more people that trust and like you, and/or who are convinced you have a winner, the more money you will raise. So continue to network both online and offline to expand the network of people who know and like you.
2. If you're already in business, keep growing it: As with any kind of funding, you will be in a much stronger position to ask for funds if you can demonstrate success in the past. So keep doing whatever you can to progress your business without funding.
3. Work on your business plan: Make sure you have a solid plan for how much funding you need, how you will spend it, and what effects it will have on your operations and revenues. You don't want to raise too much or too little, and once you raise your funding, you want to most effectively use it.
Crowdfunding is an extremely interesting and exciting new way to fund your business. It has grown dramatically as a funding source over the past two years and is poised to grow even more in the coming months and years once the JOBS Act laws are finalized.