The new Jumpstart Our Business Startups (JOBS) Act will soon give small businesses another option for revenue sources other than bank loans. This new option – known as “crowdfunding” – can provide small businesses with access to investors through approved funding portals.
While there will be restrictions on how small businesses can use crowdfunding, this new revenue option may be particularly advantageous for small businesses that have had difficulties landing funds from traditional sources.
The JOBS Act will not go into effect until 2013. Essentially what crowdfunding in the JOBS Act will allow small businesses to do is to create and foster a base of small investors who are interested in providing capital to small business entrepreneurs. Ideally, with access to a group of interested investors, small businesses will have the opportunity to expand and grow through increased marketing funds and opportunities.
Social networking and online media is expected to play an important role in crowdfunding, and approved portals for crowdfunding will most likely be accessed through these forums as well. Currently the SEC is ironing out the details on restrictions and rules for crowdfunding and funding portals, but funding portal restrictions are already outlined in the JOBS Act.
Small businesses interested in participating in crowdfunding revenue resources in 2013 can start to prepare now by:
- Ensuring that all financials are in order: Small businesses should collect financial statements – including tax returns – for at least the last year.
- Crafting a business plan: Investors will need to see a well crafted business plan and marketing model.
- Identifying capital structure to investors: Small businesses will need to figure out the capital structure available to investors. For example, what percentage of the company can be purchased through investments.
Brandon Ballenger. “Crowd Funding: More Money for Small Business.” Money Talks News (07/04/2012). http://www.moneytalksnews.com/2012/07/04/crowd-funding-more-money-for-small-business/
Allan Hall. “JOBS Act Hearings Prepare the U.S. for Expanded Crowdfunding Market.” Forbes (6/28/2012). http://www.forbes.com/sites/alanhall/2012/06/28/hearings-on-jobs-prepare-the-u-s-for-expanded-crowdfunding-accelerating-startup-activity-creation-of-jobs/
Stephen Bainbridge. “What is Crowdfunding? First in a series.” ProfessorBainbridge.com (03/21/2012).http://www.professorbainbridge.com/professorbainbridgecom/2012/03/what-is-crowdfunding-first-in-a-series.html