Crowdfunding: A Tipping Point?
Submitted by John Walker on Wed, 2012-04-11 12:29
The Jump-Start Our Business Start-Ups (JOBS) bill signed by Obama last week promises a fundamental shift in how entrepreneurs access vital early-stage investment capital. Crowdfunding, the activity of raising small amounts of investment capital from individuals through regulated web sites, is one of the most compelling advancements in the bill.
Raising capital directly from the public is already a well-established approach: Direct Public Offerings (DPOs) offer a way to avoid substantial broker representation fees in accessing capital and have been used to great effect by companies such as Ben & Jerry’s in their early days, and even using the Internet as with Spring Street Brewery here in New York City in 1999. More recently, organizations such as Kickstarter have become very successful using a project-based crowdfunding model, and with other ventures such as WeFunder emerging on the back of the recent bill the marketplace is without question on the cusp of substantial change. The tech venture capital scene definitely recognizes the opportunity and is reacting quickly to determine how the funding landscape could evolve.
The bill is, however, not without its critics. One very valid area of concern is around safeguards and protections for investors given the reduced disclosure requirements for the companies. Social media is touted as one solution to this potential issue, but it remains to be seen how effective that will be in practice.
All that aside, this is a phenomenal step in the right direction for early-stage social entrepreneurs who find the current investment marketplace a very difficult and challenging source of capital. The chance to engage the interested members of the public who recognize the value of social ventures and raise that critical growth capital is long overdue. Echoing Green and our Fellows are looking forward hugely to participating in and shaping this next era of early-stage financing.
Related:
Making Money While Making a Difference
Video: John Walker discusses impact investing
Digging Deeper Into Impact Investing
Comments
Great step forward for emerging social enterprises
John,
Thanks for the blurb on the JOBS Act and Crowdfunding. Personally, I agree that crowdfunding is a step in the right direction for startup social enterprises, even though fraud will be a problem. I compare this new frontier to the wild wild west in my blog at http://www.apexlg.com/index.php/the-crowdfunding-frontier-how-the-jobs-a...
Ultimately, my thought is that the general public is ready to begin investing in social impact entrepreneurship (see #occupywallstreet movement, and the push for hyrbid legal structures like the benefit corporation). The establishment, however, is still leary of the budding world of companies making a social impact. Crowdfunding is an excellent way to allow ordinary Americans the opportunity and ability to promote early stage social ventures.
Key Early-Stage Capital Source
Peter,
Many thanks for your comment and blog post - definitely will be interesting to see what the SEC develops in terms of regulations. Our impression currently is that crowdfunding will offer substantial benefit to those ventures that serve particular communities, whether geographic or cultural, enabling those entrepreneurs to engage interested customers and partners to build their business. The win-win dynamic there is especially relevant.
As regards hybrids, we have an article due for publication in Stanford Social Innovation Review (http://www.ssireview.org/) in May that covers many aspects of hybrid organizations including legal and financing challenges. Keep an eye out for that as we'll communicate it through our blog and social media channels around that time.
JW