Funding movement targets small entrepreneurs
Crowdfunding benefits entrepreneurs, allows investments with average incomes
Brian Meece, co-founder of RocketHub — a perks-based crowdfunding platform located in New York City, said his company helps project leaders such as artists and entrepreneurs like Chipping by allowing them to upload their idea plan to a website where prospective supporters can learn about their project and determine if they want to contribute.
"It's a way for a community to come together and really get excited about the project leader, artist or entrepreneur … and it's also a way for them to get something back," Meece said. "People give for a variety of reasons, because they like you or they know of you and like what you're (doing). Reason number three is they want that perk."
Meece was among the featured speakers at the first national conference hosted by the Crowdfunding Professional Association on the University of Utah campus at the end of last month. Chipping was one of the nearly 300 attendees.
Crowdfunding is tied into the United States of America JOBS Act — Jumpstart of Business Startups Act — which allows for a wider pool of small investors with fewer restrictions. The act was signed into law in April and takes effect in January.
The U.S. Securities and Exchange Commission has until the enactment date to develop specific rules and methods for daily operation, which is expected to jumpstart more projects in need of funding.
Alan Hall, founder of Grow America, a Utah-based organization focusing on growing companies, creating jobs and stimulating the economy, described crowdfunding as a vehicle that will allow average income people to become active investors without risking their "life savings."
The average guy or gal cannot participate in venture capital, Hall said.
"The (Securities and Exchange Commission) will not let someone who is not a sophisticated, credited investor put their money into (venture capital)," he said. "You have to have a couple of million dollars in net worth or you can't even play."
He said, "Crowdfunding will allow Grandma to take a little slice of her (funds) and take lets say about $2,000 and invest $200 across 10 companies," Hall said. "If you lose all of your $2,000, you're not upside down. But if one or two of those companies brought you a $20,000 return, then that's better than putting it under your mattress."
Hall said that crowdfunding is also a tool for entrepreneurs who may have a home-based lifestyle business or are self-employed who need a little help to grow their company.
He noted that currently in America there is no avenue for small investors to participate in venture capital or angel investing markets. Enactment of the JOBS Act will offer more regulated opportunities for the average person to invest in "the wealth environment" and for small business owners who could use a relatively modest infusion of funding to help grow their enterprise.
How successful crowdfunding will be is largely dependent on the rules developed by federal lawmakers to regulate this new industry.
Berkeley Geddes, chair of the Crowdfunding Professional Association, said besides aiding small business and entrepreneurs, enactment of JOBS Act could help institutions such as Utah's public universities raise capital to fund even more startup projects. In addition, the model could provide the boost to the national economy that many analysts have been waiting for.
"Crowdfunding is one of the most important principles on the horizon that could help America get back on with new businesses, jobs, employment and economic growth," Geddes said.
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