You may have heard of investment crowdfunding after the JOBS Act was passed in 2012 to help loosen securities regulations for companies looking to access capital to grow their business. The act, signed into law by Barack Obama, is intended to:
“[I]ncrease American job creation and economic growth by improving access to the public capital markets for emerging growth companies.”
Since Regulation A+ was approved by the SEC on June 19 2015, small businesses are now further capable of raising funds in exchange for equity from both accredited AND non-accredited investors.
In addition, small business will now be able raise money from accredited investors around the country because of the finalization of Title III of the Jobs Act.
If you’re still wondering how all of this has the potential to benefit the US economy (and its citizens) in a big way, check out these highlights from Crowdsourcing’s infographic, Investment Crowdfunding: a revolutionary way to fund small businesses:
Small Business is Bigger than you Think
When you look at the words ‘small business’ the emphasis may seem to be on ‘small’, but the truth is that together small businesses can do very big things. To give you an idea, there are approximately 27 million small businesses in the US that generate a combined $6 trillion in revenue each year!
“50% of non-farm private gross domestic products are generated by small businesses.”
On average, startups who seek outside financing are looking to raise $25,000. With platforms like Crowdcube, StartupValley, Seedrs and others giving average investors a chance to take part in crowdfunded investments (with lower than traditional minimum investments), small businesses now have an alternative method to access the finances they need to grow.
Small Businesses Create Jobs
Small businesses have helped provide 8 million new jobs since 1990, and with the help of investment crowdfunding that number can start growing at an even faster rate.
Small businesses create 4,000 new jobs on an average day and 90% of all new jobs in America! They employ about half of all private-sector employees and hire 40% of high-tech workers. These numbers give us an idea of how important small businesses really are, and where many of us might be without them (unemployed).
Americans Have Money to Invest
The typical American household has $12,000 in discretionary spending funds, which are often spent on things that we don’t really need. In total, Americans spend an estimated $1.47 trillion annually on discretionary goods and services. US savings deposits were $6.7 trillion in January 2013.
So we know that American’s have money to invest – the next step is to lower barriers that are keeping them from doing so (like lack of knowledge or understanding, mistrust of online investment platforms, etc.)
Investment crowdfunding makes the process of investing in small businesses easier, with many platforms giving users the tools they need to learn more about smart investing. If every household spent just a portion of their discretionary funds on investing in small businesses, it could make a big difference for entrepreneurs who are looking for funding but haven’t been able to access it.
How We Can Fund All Startups
Crowdsourcing.org suggests that together, through small reallocations of our day-to-day funds, we can meet all of small businesses’ funding needs. They use four areas as examples of where we can cut our spending and start investing more: bottled water, coffee, cigarettes and gambling.
“100 million Americans spend an average of $164.71 on coffee each year. If everyone reallocated 10% of coffee spending on investment crowdfunding, it could fund 44,000 startups and create 400,000 jobs.”
Basically, if we spent 10% less on coffee, bought two less bottles of water per month, smoked 3 less cigarettes per week and gambled an hour less at the tables per day (for those who do all of these things), that money could fund 414,000 small businesses and create over 2.5 million jobs!
Conclusion
Hopefully this summary has helped explain how investment crowdfunding can be used, not only for economic growth, but also for a host of other benefits (like making investors feel they have a stake in their community, greater financial literacy, etc.)
Crowdsourcing’s infographic shows us how investing in small businesses can help create jobs and reduce the funding gap for small companies, encouraging innovation. It is important to keep in mind that there are still some barriers to such widespread use of investment crowdfunding.
Small businesses might not all be aware of the options that are available to them. Investment crowdfunding can also be costly in some cases and require businesses to disclose a lot of information to potential investors.
As regulations continue to be adapted to serve the needs of smaller businesses and more people educate themselves on crowdfunding and the JOBS Act, we may see more small businesses turning to investment crowdfunding in the future.
