Traditionally when businesses expand they fund growth by offering company stock or pledging assets to secure debt. As the public offering and lending markets have pulled back in the current economy we see more business expansion funded through venture capital and angel investor groups. With angels moving up the funding hierarchy and leaving a gap with only friends-and-family as the next funding option for entrepreneurs, there is an interesting legislative initiative proposed to fill this gap with federally authorized crowd funding.
Crowd funding has not been recognized as a legal way of offering investment in a company because it does not comply with securities regulations designed to inform investors of risk. Accordingly, crowd funding has been limited to patron contributions with no investor potential for upside if the business succeeds. Crowd funding has worked well for artistic endeavors but has not had great success backing companies that will build the next green tech gizmos.
The House Financial Services committee recently backed a crowd funding bill known as the “Entrepreneur Access to Capital Act”. The law effectively waives the federal accredited investor requirements and allows companies seeking less than $2 million to offer a private investor up to $10,000 of stock. The act also provides provisions for third-party facilitators to make a market for transactions between startups and investors.>>> READ MORE at: