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The Crowdfunding Bill Just Might Save Entrepreneurship

By Imran Mukati & Katie Soo (www.ownyourhollywood.com)

 

Los Angeles, CA -- (ReleaseWire) -- 03/15/2012 --It's no secret that the economy isn't what it used to be, but a bill introduced in the US House of Representatives last fall by Rep. Patrick McHenry (NC-10), which was passed overwhelmingly, might hold the key to a major jump start for budding entrepreneurs who are currently hampered by SEC rules and other regulatory burdens.

The bill, H.R. 2930, has the support of President Obama. If it passes as presented, the future will look much brighter much quicker for everyday people with great ideas but a lack of resources for funding them. The bill, which is now part of the JOBS ACT CLICK HERE FOR THE JOBS ACT , is a pivotal part in making crowdfunding a viable way for entrepreneurs with great ideas to raise capital in an economy where access to funding remains difficult. Before getting into the specifics of the bill and the potential effects it could have on future startups, let’s first examine what crowdfunding truly is, what its history looks like, and the hurdles it will allow new companies to overcome.

What Is Crowdfunding?
Crowdfunding is an offshoot or cousin of crowdsourcing, which is a term coined by author Jeff Howe in 2006. Crowdsourcing is the practice of gathering information, input, and ideas from a large group of people, and essentially putting them in charge of the decision-making process for whatever the project happens to be. Historically, if the public were to get involved in something widespread, it would be done through Town Hall meetings in the case of political affairs, or through organizational meetings in the case of private ventures or local affairs. With the advent of the information age and social media sites, the opportunity for people nationwide or even globally to participate and have a voice in things has become as easy as firing up the laptop or desktop.

A simple example of crowdsourcing would be something similar to a local merchant who wanted to come up with a slogan for their new business. In times past, they could send out postcards asking for ideas, have people stand in front of grocery stores to survey people as they went in and out for ideas, or even make phone calls throughout the community. Today, through sites like Twitter and Facebook, the same merchant could get ideas from all over the world, and from many varied types of people - in a much quicker span of time. Being able to tap into the widespread resources directly on the web has many advantages. Different regions, professions, cultures, and more can help give a broader vision and perspective to an idea, as well provide additional choices and options for the company to consider.

The crowdsourcing idea first moved to crowdfunding within the charity and nonprofit space, where it has largely remained because of legal restraints which have been around since the 1930s. Charities began using the principles of crowdfunding a long time ago through television telethons and other similar fund raising techniques. However, the reach of social media sites are much greater than a television station, whether a national or global station. By collecting only half of a standard donation amount from ten times the amount of donors, charities and non-profits can exponentially grow their donations, and this is exactly what they have set about doing in recent years.

Take the Superbowl XLV for example. According to Nielson, it was the most-watched program in television history, bringing in 162.9 viewers, easily making their commercial buy one of the most sought after for large brands. Volkswagen purchased a 30 second spot showcasing a little kid dressed in a Darth Vader costume, using the force to move his belongings, and eventually – his family’s VW Beetle. Leveraging the reach of social media, they launched their 60 second full ad version on YouTube, accruing millions of views before Packers and Steelers even took the field. To date, it’s been watched 51 million times just on YouTube alone. There currently are over 500 million people on Facebook and the majority of them visit the site regularly. Many, as you are undoubtedly aware if you have many friends who use the site, keep tabs on their wall and posts throughout the day every day. For more than 50 percent of the world’s population under 30 years old, these social media platforms have become a primary source of communication. According to Erik Qualman’s Socialnomics, gamers are expected to spend more than $6 billion on virtual goods by 2013 This means we are now looking at an audience willing to spend through social mediums. With the World of social media becoming the most reliable source of marketing, crowdfunding not only gives the purchase power back to the consumer, it automatically builds in a strong database for whatever topic you’re funding for. By tapping into this vast database of social media users for even very small donations, say one dollar or less, the potential for raising millions of dollars quickly becomes a very real possibility.

The Problem
Crowdfunding in the last couple of years has seen great success in many creative and individual projects apart from the successful ventures of non-profits and charities. Movies, books, albums, and other arts projects have found funding through crowfunding sites like Kickstarter and Rockethub, among others. The successes prove that the idea works and that there are people who are willing to supply funds in this format to ideas and projects they believe in.

A problem arises when crowdfunding is desired for funding a new business idea for a startup company. There are regulations in place from the SEC and other Federal agencies which make this form of fund raising unavailable to businesses for the purposes of investing, which at this present time seems particularly ridiculous. The fact is, these rules are more than fifty years old, and given the current job climate, they simply are not in sync with the advancements in technology in the digital age of information we live in. Government, as evidenced throughout history, has not adapted to the speed and pace of cultural, social and technological advancements. While people can contribute at will to startups, their only legal return on investment right now are token gifts and the success of the venture. As the law currently exists, they cannot expect or legally receive any return on their money in the form of shares or dividends. Crowdfunding, however, will be the game changer.

The Solution
Rep. McHenry's bill has been lumped in to a larger bill introduced by House majority leader Eric Cantor (R., VA) called the Jumpstart Our Business Startups (JOBS) Act, which just passed overwhelmingly last week in the House with a 390-23 vote. While the President appears to be in favor of the measure, the more liberal members of the Senate could hold up the passage of the package just as they did Rep. McHenry's bill last fall.

There are six areas in which the JOBS Act will help entrepreneurs to gain funding for new ideas, create new and innovative businesses, and create more private sector jobs. All of these measure relate to SEC regulations and restrictions being lifted, even if only temporarily.

The Reopening Capital Markets to Emerging Growth Companies Act would allow temporary relief from some SEC regulations and make it easier for companies to go public.

The Access to Capital for Job Creators Act would remove an SEC regulatory ban on small businesses using advertisements to attract investors, making it easier for them raise capital.

The Entrepreneur Access to Credit Act would eliminate the restriction on small businesses using crowdfunding to raise money as described earlier in this article.

The Small Company Capital Formation Act would help small businesses go public by raising the SEC threshold for exemption by 10 times, from $5 million to $50 million.

The Private Company Flexibility and Growth Act would allow small private companies more room for growth, raising the threshold from 500 employees to 1000 before a company must go public.

The Capital Expansion Act would allow the number of shareholders allowed to invest in a community bank to increase from 500 to 2000. Community banks are some of the largest lenders to small businesses, and this act would attempt to lighten the regulations these banks face in order to allow them to lend more.

All of these acts together could open the floodgates on new small business startups, showering the market with new business opportunities, and in turn, immediately creating thousand of new jobs for an economy that desperately needs them.

In analyzing the success of previous crowdfunding ventures, it should be proof enough for the need to pass these acts. If the current restrictions which prevent contributors from becoming actual investors are lifted, small businesses and startups will be able to advertise, promote and take in investments from the everyday person who believes in their concept. Not only will this shorten the wait time for companies waiting for capital, it will increase the revenue stream of those willing to participate and invest.

The best ideas always come from the private sector, from the person who suddenly comes up with a brilliant concept while in the car, dorm room, or while sitting at their dining room table. The restrictions and corporate competition with major funding keep these dreams from coming to fruition. The more we allow those who dare to dream to build, expand on, realize, and monetize their ideas, the faster our economy will grow, moving us towards a stronger economic future.

The Opposition
There are those on Capitol Hill who have criticized this measure because they say it is not comprehensive enough, nor does it go far enough to create new jobs, but is that a valid reason to oppose the bills? Their only complaint seems to be that they want more done, so it stands to reason that they would support the measures to open the door to small businesses, and then move onto whatever else they need to bring to the floor that will create job opportunities. Certainly, any opposition to these bills will be seen for what they are sure: pure partisan politics with no thought of the small business sector or the common people in mind.

It is vital that these bills pass both the House and the Senate. It’s likely that President Obama will sign them into law immediately.. If the bills are passed and enacted immediately, the job market could see staggering growth by the end of the summer, which in turn would give the President a huge boost in his campaign.

Just Do it
Regardless of the political implications, the impact on the national economy as well as the pursuit of a better life for the everyday man would be huge. For someone to understand that, no matter how big or small, they could take an idea and have it possibly funded within days or weeks through the hundreds of social media outlets that may be ready to go live within minutes of the bills passing, is the definition of hope, the true American dream.

We are anxious to see what innovative ideas will stem from our global communities when, and if, the bill passes – We may even have a few of our own to pursue. All it takes is a piece of paper and a dream to build success. Why not share that with like minded individuals who are willing to support, fund, and collaborate on bringing creative concepts to life? With the right people and resources, ANYTHING can become a reality. http://ownyourhollywood.com)" rel="nofollow" href="http://www.ownyourhollywood.com">(http://ownyourhollywood.com)

To learn more about the authors please follow us on Twitter @imranmukati & @katiekat.

To learn more about Own Your Hollywood please follow us on Twitter @OwnUrHollywood.