Crowdfunding bill passes House, alters startup investment landscape

Crowdfunding helps startups that may not have access to venture capital funding.
Crowdfunding helps startups that may not have access to venture capital funding.

A startup CEO who is unable to pitch his or her business to venture capitalists may need to find alternate sources of funding, which could be facilitated by a new bill that would ease investment restrictions and democratize the startup funding process.

The JOBS Act – a bipartisan bill that passed the House of Representatives last week by a 390-23 margin – contains a slew of public policy initiatives intended to aid the development of startups that are in dire need of funding. On the whole, the bill eases federal restrictions that have been in place since the 1930s, which some believe are outdated.

With crowdfunding, risk is pooled among hundreds, and maybe even thousands, of investors, all of whom can donate small amounts of money toward a particular venture – up to $10,000. Under current Security and Exchange Commission laws, Americans who make less than $200,000 annually are excluded from contributing to startups, according to Time Magazine.

The use of the internet to raise investment funds is currently prohibited because of concerns regarding consumer fraud. But, the success of platforms like Kickstarter and Rockethub has shown the enormous potential the internet has as a fundraising tool.

"Crowdfunding has the sort of populist, common-sense appeal that resonates with free-market libertarians and champions of the working class," author Amy Cortese wrote for The New York Times last fall. "By marrying online social networks with finance, this model offers a more democratic model of finance, in which individuals can directly fund other individuals or businesses that they deem worthy, without going through a bank or Wall Street middleman."

Should the JOBS Act become law, startups would have another source of funding beyond banks and venture capitalists. While these entities could still provide valuable funding to developing businesses, crowdfunding would allow executives to tackle funding problems from multiple angles. Businesses may need to hire an executive recruiter to conduct a global executive search and find an executive capable of finding a variety of funding sources.