A new way for start-ups and small businesses to Raise money

The tough lending climate has led businesses to find new sources of cash from micro-lending to crowdfunding.  “Crowd funding (sometimes called crowd financing, crowd sourced capital, or street performer protocol) describes the collective cooperation, attention and trust by people who network and pool their money and other resources together, usually via the Internet, to support efforts initiated by other people or organizations.” – Wikipedia

The Entrepreneur Access to Capital Act was passed by the House of Representatives in early November of last year. However, in order for the Act to become law, one final hurdle remains.  The Senate must pass the Democratizing Access to Capital Act, which is “[a] bill to amend the securities laws to provide for registration exemptions for certain crowdfunded securities, and for other purposes.” The Senate bill essentially has the same objective as the Entrepreneur Access to Capital Act, as it allows entrepreneurs, start-ups and small businesses to attract and receive small amounts of capital form ordinary investors through crowdfunding sources. Although the House and Senate bills have some differences, both are in line with Obama’s Jobs Act.

In simple terms, the passage of the Act would make it easier for entrepreneurs, start-ups and small businesses to reach ordinary investors by leveraging crowdfunding sources through the internet, such as Kickstarter and Rockethub, and other social media platforms, such as Twitter, Facebook and Linkedin. Nearly $100 million in seed money was pledged last year to start-ups and entrepreneurs through Kickstarter.  Essentially, the entrepreneur, start-up or small business seeking to raise money will post information about their start-up or business project to market its product or service, generate interest, and hopefully attract capital investment or seed money. In return for a small capital investment, the business will offer perks, such as t-shirts, jeans, or other products and services it will be providing – as opposed to offering a financial or equity stake in the business.