Crowdfund investing is an exciting new business financing opportunity created by the JOBS Act that President Obama signed into law in 2012. It taps into the power of the crowd by connecting entrepreneurs and small business owners with investors via LinkedIn, Facebook, Twitter, and other social media networks. And it offers small investors the chance to purchase an equity stake (or to fund debt) in small, private businesses run by people they know and trust.
Regulated by the U.S. Securities and Exchange Commission (SEC), crowdfund investing occurs via online funding portals — websites that host investment campaigns and collect investor pledges. An individual can invest only a limited amount each year in these campaigns (to mitigate investor risk), and a campaign must be funded completely in order for the business to receive investor dollars.
Is crowdfund investing a funding source you should consider for your startup or small business? That’s a big question, and it requires some serious consideration. Asking for crowd support can produce amazing results; you can benefit not only from the money but also from the talents, skills, and collective wisdom of your crowd. But using this funding source is a big responsibility. If you decide to sell equity shares of your company to the crowd, your investors become your business owners. In doing so, you must be prepared to be a master communicator (because crowds don’t like silence and will fill it with speculation) and to spend ...