The Times Have Changed.
Welcome To The New Era Of Finance.
Let’s have ourselves a history lesson in raising capital from the crowd, shall we?
The concept of tapping small investors for funding is, in many ways, nothing new. In fact, it has been around for centuries — since the nineteenth century even — when Joseph Pulitzer asked readers of the New York World to donate a small sum to a “pedestal fund” that would to help finance the base of what later became the Statue of Liberty. “Let us not wait for the millionaires to give us money,” Pulitzer wrote in bold print on the newspaper’s front page. And as we very well know, his appeal was successful. Not only did the campaign raise $101,091 from roughly 160,000 investors, but today Lady Liberty continues to stand tall — serving as an American icon for freedom and independence. It’s also a testament to how truly powerful raising from the crowd can be.
Fast forward several decades to the 20th century, when entrepreneur Henry Ford used the crowd to launch the famed Ford Motor Company. He offered friends, family members, and acquaintances a return on their initial investment, an arrangement that gave Ford the capital he needed to start his business. Ford, however, had some trouble in initially getting his message out there, as regulations from the Securities Act of 1933 and the Securities Exchange Act of 1934 prohibited him from “generally soliciting” to potential investors (both laws were made by the U.S. government to protect “unsophisticated investors” from losing all of their money).
In a sense, it was a wise move for the country — having just come off the heels of the Great Depression — but the acts lay out a strict laundry list of rules and regulations that would go on to haunt entrepreneurs into the next millennium, creating mounds of red tape when it came to crowdfunding, and thus lowering the potential of the American economy to further prosper and thrive.
Our national economy is based on innovation and entrepreneurship, as small businesses create more jobs than all the big companies combined. If we are to grow our economy and grow jobs, we have to grow small businesses, it’s as simple as that. But if small businesses do not have access to capital they cannot grow. And if they cannot grow, they cannot hire. If they cannot hire, it begins to depress our whole economy, which, in many ways, is what led to more recent economic woes such as the Great Recession.
It is safe to assume that, business wise, the entire country is ready for something new. Enter the Jumpstart Our Business Startups Act (JOBS Act)that was signed in 2012 to reignite the power of using groups of individuals to raise money for everything from small business startups to commercial real estate. As of May 16, 2016, the law was officially in action, and now, for the first time in eight decades, entrepreneurs of all sorts will be able to seek investments from ordinary Americans without having to go through the expense and rigor of a full public stock offering. Now, it’s everybody’s game, as family, friends, and basically anyone interested enough in your company — not just angel investors and other wealthy individuals — can stake a claim in what may very well be the next Facebook, Google, Dropbox, or Tesla. We may even go on to create for ourselves another colossal national landmark!
As SEC Chair Mary Jo White says, “There is a great deal of enthusiasm in the marketplace for crowdfunding, and I believe these rules and proposed amendments provide smaller companies with innovative ways to raise capital and give investors the protections they need.” It’s the start of a “renaissance”of entrepreneurship in the United States, and the benefits that come from this new era in are endless. Let me explain why:
First, opening up access to crowdfunding to “non-accredited investors” will expand the amount of money being invested in startups, and could potentially bring a couple billion dollars of additional capital into startups each year in the U.S. (once the industry has a chance to grow into and adjust to the new regulations). Entrepreneurs, in addition, will now also be able to raise more money in shorter periods of time, a godsend to those running startups who hope to grab the curiosity and attention of everyday investors online.
This new option for crowdfunding has been tailored for startups, with a streamlined process and far fewer restrictions to help entrepreneurs turn their business acumen into initial seed funding by engaging their passionate community. As my partner and fellow StartEngine co-founder Howard Marks always says: “We are striving to democratize capital, and these rules move us one step closer to truly making the American dream a reality for everyone.”
Things are rapidly changing and the doors have now (finally) opened to allow entrepreneurs to bring their innovations directly to the very customers they intend to sell those products and services to — and to seek the capital to further develop and grow their business. Before, the single biggest barrier to bringing new innovations to the market was the difficulty of getting access to capital. Title III not only levels the playing field, but could result in the creation of tens of thousands of lucrative jobs right here in the good old U S of A.
As an entrepreneur who has visualized, founded, built, sold, and led various companies throughout the years, I even believe that we are likely to see 20,000 new small businesses raise capital under these new rules over the course of the next five years.
Forever changed is definitely one way to put it. The greatest advancement for entrepreneurship in a generation is how I see it. We’ve come a long way since the summer of 1885, when Pulitzer pioneered that age-old classic crowdfunding campaign. Through the JOBS Act, we are once again pushing boundaries, changing regulations, and ushering in a new era in fundraising for small business owners that was never possible before. The sky’s the limit — so what are you waiting for?
