Crowdfunding restrictions can deter startups

Congress is considering a bill that would ease SEC restrictions on investments to startups.
Congress is considering a bill that would ease SEC restrictions on investments to startups.

An additional $1 million in funding would help Boston entrepreneur Alex Cook get his online rental startup off the ground. Understanding that he would benefit from increased funding opportunities for his company, Cook is supporting a Senate bill that would ease SEC restrictions on funding for startups.

Massachusetts Sen. Scott Brown is advocating a bill that would help businesses like Cook's by legalizing certain crowdfunding practices, according to Boston Business Journal. Crowdfunding, first used primarily for charitable causes, is a process that allows investors to pool their money together, usually through web-based technologies, to support a particular cause.

For the most part, the practice is not taking hold in the business world because the SEC does not allow a private company to have more than 500 investors. Businesses that want to accept more than 500 small donations from casual investors often have difficulty working around this rule.

Brown's bill, similar to its House counterpart that passed earlier this month, would allow companies to accept up to $1 million in investments, and no more than $1,000 per investor, without having to undergo SEC scrutiny. Crowdfunding's ability to transcend current barriers to success could prove invaluable for startups.

"As a Boston startup, raising capital from solely Boston investors is next to impossible – startups simply have to find funding from outside their local area," Cook told the news source.

Regardless of whether Brown's bill passes the Senate, entrepreneurs must constantly be developing creative solutions to fund their ventures. If a new business plans to hire a CEO with prior C-level experience, it should counsel with its executive search firm to identify candidates that could spur investments in the company. The candidates that are best able to do so may be those that have prior experience successfully building and leading a startup.