December 12

How would you like to raise up to $2 million for your startup business?  And do it by letting investors “point-n-click” the cash your way via the Web?  It may soon be nearly that simple, thanks to the “Entrepreneur Access to Capital Act” (more commonly known as the “Crowdfunding Act”) that passed the House in an overwhelming (and bi-partisan!) 407 to 17 vote.  President Obama is another driving force behind the legislation, which is designed to dramatically streamline fund-raising for entrepreneurs.

After the bill passes the Senate (and all indications are that it will), and President Obama signs the legislation into law, entrepreneurs will be able to turn on a grassroots method to raise capital — equity sales online — with greatly reduced SEC restrictions.  The freer flow of money would be rocket fuel for startups, which are an essential engine for a robust economy and job creation.

“Crowdfunding” — a way for masses of people (“the crowd”) to feed ventures with capital via the Web — has blossomed in recent years thanks to sites like Kickstarter.com.  But SEC “red tape” (primarily the Securities Act of 1933) has prohibited these sites from directly offering investment shares in the enterprises.  The new Crowdfunding Act will remove this barrier.  No longer will equity sales be restricted to accredited investors.  And the power of public-supported funding will be unleashed.

Entrepreneurial endeavors will be able to sell up to $2 million in ownership shares to an unlimited number of investors.  And individuals will be able to invest up to $10,000 or up to 10% of his or her annual income, whichever is less.

If a company seeks the maximum $2 million in funding, it must supply “the crowd” with audited financial statements.  A company can choose to bypass the audited-financial-statement requirement — but then the maximum capital it can raise is $1 million.  (That’s nothing to sneeze at!)

When the President signs the legislation into law, it will be a great day for all entrepreneurs.  Just as important for America, the ensuing new businesses will provide a shot of adrenaline for the economy and help rev up the job-creation engine.  Everyone will win.

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