Jobs BillOn Thursday afternoon, President Obama signed the JOBS Act, and among the changes it will bring to the world of business startups is one that makes use of a rising trend: The power of crowdsourcing.

The SEC will have 270 days to interpret the basic concepts in the Jumpstart Our Business Startups Act and turn them into practical regulations, but businesses are already preparing for the tectonic shifts in the way they acquire investors.

The Right to Solicit Broadly

The first change, coming in 90 days, will allow businesses engaged in private offerings to publicly solicit funding -- in short, they'll be able to let the broad community of investors know they are raising money. Previously, it was illegal for a small private startup to solicit funding like that, unless it was ready to make an initial public offering. And IPOs are major proposition, typically reserved for startups weill beyond the early stage, with serious capital behind them.

Bill Clark, CEO of MicroVentures, an Austin, Texas-based firm dedicated to helping startups raise capital or connect with angel investors, sees this change as opening up a bright new frontier for the little guy.

"Now you can finally tell your network you're raising money," Clark said.

Naturally, the SEC will regulate this on the advertising and promotion front.

"The fear before was that people were going to be targeting people who didn't have a good background in investing," Clark said. "We're not going to say 'We have the new Facebook: You're going to get a 10-times return on your money.' Any time you promote something or guarantee money or use those terms, it's a red flag for the SEC."

Crowdfunding and Spreading the Love

The new rules on crowdfunding, scheduled to take effect in 2013, will allow laymen and unaccredited investors to buy into these small businesses. At the moment, regulations limit companies to 500 shareholder accounts, and the people who hold them must be vetted and approved. Next year, that number jumps to 2,000 for accredited investors, and becomes unlimited for everyone else: Any average Joe will be able to take flier on the entrepreneurial spirit.

"Now almost anyone can get involved," Clark said, "And that takes a lot of money that's sitting on the sidelines and puts it into play, and that's going to open the door for a lot more companies to get funded."

Previously, small companies looking to raise money without registering their securities with the SEC had to use what's known as Reg D 506, a "safe harbor" exemption for specific types of private offerings, but soon startups will be able to use the crowdfunding exemption.

It Takes a Village

This shift at the legislative level reflects some of the changes that have taken place across the economy, and the national culture. After 3 years when unemployment teetered around 9%, there's a clear need to funnel capital into creating new businesses or expanding existing ones to provide more jobs. And in today's social and technological environment, it has become ever more common to harness the power of collective energy to bring these projects and businesses to fruition.

For example, the popular fundraising website Kickstarter has been used to crowdfund upwards of 15,000 creative projects such as indie bands' albums or low-budget movies. The business has been especially energetic of late: Kickstarter had two separate million-dollar campaigns meet their goals in February. Elevation Dock, a company that created a holding dock for iPhones, was the first Kickstarter campaign to hit seven figures, and Double Fine Adventure, a campaign to fund the creation of a new game by Tim Schafer and 2 Player Productions, became the second.

In a further sign of the times, Palo Alto-startup Crowdtilt allows users to create online campaigns to "group fund anything."

"Instead of funding a $40,000 documentary, the site is being used to fund weddings, bachelor parties and backyard barbeques," Crowdtilt's 25-year-old co-founder, James Beshara, told DailyFinance in March.

And the incentive is often as much for the creative partners as for the seed investor. "Kickstarter and the like have proven that these large numbers of engaged users have the appetite to take part in these projects to get something later on," Clark said. "Not only are you going to help me create this but if it does become successful, you are going to get a chunk of this."


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17 Comments

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wbeinv

tell me all about it in a year...

April 07 2012 at 10:09 PM Report abuse +2 rate up rate down Reply
jdykbpl45

Another load of horse **** from Obama and his clowns.

April 06 2012 at 5:06 PM Report abuse +1 rate up rate down Reply
laptop603

These comments. Geez. People gotta complain what ever the government does. They don't you people complain, when they do, you complain some more.

April 06 2012 at 2:00 PM Report abuse -3 rate up rate down Reply
1 reply to laptop603's comment
wbeinv

when you learn how to spell and type at the same then try again to explain your position

April 07 2012 at 10:12 PM Report abuse rate up rate down Reply
bakethis

The average Joe can now invest - How much will average Joe lose? This might move money, but to whom? How many scammers will take advantage of this opportunity?

April 06 2012 at 1:56 PM Report abuse +3 rate up rate down Reply
2 replies to bakethis's comment
laptop603

The average joe can invest what he/she wants. No balls, no blue chips. Yes, scammers will take advantage of anything and everything.

April 06 2012 at 2:01 PM Report abuse -2 rate up rate down Reply
jdykbpl45

Barak and the we will pass it, then you can read it crowd, strike again.

April 06 2012 at 5:07 PM Report abuse rate up rate down Reply
Mike

Sounds like the .com debacle all over again....watch which IPOs you invest in, very carefully

April 06 2012 at 12:49 PM Report abuse +4 rate up rate down Reply
howlar2

Sounds like a federally-backed license to steal.

April 06 2012 at 11:23 AM Report abuse +7 rate up rate down Reply
whitneygre

It sounds like Kickstarter is already doing this so are we just legalizing some loophole in the existing 500 shareholder limitation? Poor article--very confusing. And this legislation is not really a "new" initiative--it merely softens a prior regulation that was useful to limit frraudulent sales of securities to novice investors. Now, with that limit gone, it sets up a bigger federal department to supposedly limit the abuse of the proposed reduction in regulation!! That's Washington for you.

Lawyers, government unions, and scam artists will prosper. Entrepreneurs will still struggle with the bureaucracy if they need funding. BTW- In the last 30 years there have been millions of successful start-ups that pioneered new technologies and created huge employing corporations-- AND, they did it without this so-called "reform."

April 06 2012 at 10:32 AM Report abuse +1 rate up rate down Reply
the aol experien

As I understand this, do we have to wait 270 days for the SEC to release this program through their control? If so, we are in trouble.

April 06 2012 at 9:30 AM Report abuse +1 rate up rate down Reply
ha6ai

AOL/HuffPuff is the National Inquirer of "finance" news. Soooo, let's see ... on-line poker gambling is illegal, but every potential scam is an "investment".

Its bad enough if you gamble away your money because you're not a good poker player - at least you can see your own hand. The idea of open-ended scams pitched to people who have no venture-capital business or investment acumen is going to create many victims of financial fantasies. There are good reasons to have limits on pitching to unsophisticated "investors".

Unlike the lotteries, where lots of people bet tiny amounts of money, even knowing full-well they are gambling against outrageous odds, lots of clueless people will be betting real money they cannot afford to lose. What a mess.

If it happens it should be fun ... more work for lots of lawyers sifting through the rubble and lots of new federal government bureaucrats, and as icing on the cake, further Federal intrusion into the province of state regulation and control, resulting in lots of new class-action law suits, money for the lawyers, and lots of people left holding the (empty) bag.

April 06 2012 at 1:38 AM Report abuse +5 rate up rate down Reply
judithg

if this were part of an expanded small business agency it could work for some people. mostly, this is gambling and not really investing. first of all, a business like a band or an album or some creative project hardly ever throws off profits or is even around long enough to do that. this cockamamie scheme may have good intentions but it sounds like doing anything but putting pressure n the banksters to substantially increase small loans. credit worthiness is what has to be adjusted. we paid for the banks to stay in business.now they are rolling in the stuff and only want to give themselves bonuses.
and yet and still we have no jobs that pay the mortgage or the rent or put food on the table or clothing and school supplies for our children or gasoline for the cars we need to commute to the wage slave jobs.

April 05 2012 at 10:57 PM Report abuse +4 rate up rate down Reply