Last year, crowdfunding raised billions of dollars for new business ideas and products on sites like Kickstarter and Indiegogo. It's a solid model for raising money for young business ventures and, until today, the model was one of the only ways startups in the United States could publicly crowdfund their projects.
That all changed today when a federal law went into effect (as part of the 2012 JOBS Act) allowing emerging startup companies to publicly seek funding for their ideas without being required to publicly trade shares. Basically startups will be able to raise up to $1 million per year from "accredited investors" (who have a net worth greater than $1 million or annual income greater than $200,000), but instead of rewards -- like Kickstarter offers backers -- investors can potentially gain a return on their investment.
But while the new law may broaden funding sources, there are some concerns, New York Times points out:
But others, including noted tech investors like Fred Wilson and Rick Webb, are less optimistic. They warn that by deregulating the raising of equity investment — at least in part — the legislation has the potential to unleash a cascade of abuses by luring investors to what may be risky and untenable business ventures. And some critics have questioned whether it will even help entrepreneurs, because if a company raises more than $500,000 it will have to produce audited financial records — a significant expense for a young business.
Regardless, the rule is set to eventually allow more of the crowd to invest in startups as the law is expected to be revised to reduce requirements of who is considered an "accredited investor."
Read more: New York Times
Photo: Flickr/401(K) 2012
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