Startups now have “The Crowdfund Act”. As startups begin to create a new job sector for economies, the Crowdfunding Act will surely add a lot of value to the entrepreneurs.
Carlo D’itri, the CoFounder and General Counsel at Crowdfunder.com tells us how this new Bill will revolutionalize the world of startups.
The CROWDFUND Act passed with flying colors . How do you think this will help startups? Is the Bill still in its infancy?
The CROWDFUND Act is going to radically alter the startup landscape. As many startups know, early-stage capital can be tough to come by, and founders can spend a lot of time finding and pitching to angels and VCs. Unfortunately, some founders who aren’t very connected can fall through the cracks in this system.
With crowdfunding, startups will be able to raise the early-stage capital they need so they can focus on creating their initial product or building a customer base, rather than spending months and months chasing after angels and VCs. We don’t think crowdfunding will supplant angel and VC funding. We hope it will allow more companies to more fully develop their businesses by the time they reach the point where they’re seeking institutional investors, thereby creating a more robust startup marketplace for everyone.
Even though the bill was signed into law on April 5, 2012, it’s still fair to say the legal environment is in its infancy. Under the law, the Securities and Exchange Commission now has 9 months to make further rules and regulations governing crowdfunding. One, this leaves a lot of procedures uncertain for the industry and for companies wanting to use crowdfunding. crowdfunder is a founding member of the crowdfunding industry self-regulatory agency CFIRA. Through CFIRA, we plan to work closely with the SEC and push for smart regulations that strike the right balance between investor protection and economic feasibility for companies raising money. The concern is that too much regulation could make crowdfunding too expensive for some smaller companies to use it. And in reality, we believe the inherent protections of crowdfunding and the existing legal structure set forth in the CROWDFUND Act will more than adequately protect investors.
What is the vision behind Crowdfunder.com?
We want to make it easier for startups and small businesses to access the resources – certainly money, but also expertise, information, etc. – that they need to grow and thrive. We also want to open up the capital markets to everyday Americans. Investing in and being an active participant in the small business ecosystem should not be a privilege reserved only for the wealthiest Americans.
“We highly value entrepreneurship and innovation, and we want to be one of the engines that drives these values in our economy.”
How is Crowdfunder different from other platforms like Kickstarter/IndieGoGo?
Sites like Kickstarter are focused on creative projects like music, film, artists, etc. But aside from that focus, they operate on a donation model. Anyone can donate to a Kickstarter project, but they aren’t allowed to receive any return on their donation. Usually they get something like a “thank you” message, a t-shirt, or a copy of the album or film.
Crowdfunder operates on a Business Crowdfunding model. Instead of funding projects, people will be able to fund businesses, and they will actually be allowed to receive a return on what they fund to a company. Instead of just taking donations, companies will be able to sell equity (i.e. their own shares) or issue debt or revenue-based investment contracts. We are going to allow all Americans to be part owners of small businesses they believe in.
Will the Crowdfunding Act affect the VC and Angel Funding ambiance?
I think crowdfunding may give some startups a boost of confidence. Instead of having to hustle for money before they really have a product to show, startups will be able to approach bigger investors after they’ve achieved some real progress.
Do you feel that democratization of startups is an important step ahead for wealth creation?
Absolutely. As I mentioned earlier, crowdfunding has the potential to grow the entrepreneurial market as a whole – so the pie should get bigger for everyone. But just as importantly, it will allow ordinary Americans to participate meaningfully in the startup wealth cycle for the first time.
Implying that accredited (i.e. wealthy) investors are “smart” money is not just insulting to the vast majority of Americans who earn under $200,000 annually, it’s in many cases false. Having money doesn’t make you smart or a good advisor to a startup. I’ve heard commentators say that crowdfunding will stick companies with “dumb” money – i.e. with investors who don’t have anything to offer other than their money. But I think engaged and passionate investors will become evangelists, fans, and even customers of the companies they invest in. Overall, crowdfunding is going to unlock a lot of value and allow participation in the startup and small business market like we’ve never before seen.
Watch out this video on Techcrunch TV where Chance Barnett, the founder and CEO of Crowdfunder.com speaks on the Act.
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