Changing the Rules of the Game: Crowdfunding and Entrepreneurship

Crowdfunding has taken the cyberspace by storm. Through platforms such as Kickstarter or Indiegogo, innovators can pitch their ideas and like-minded individuals around the world are able to come together to pool their resources toward a specific goal. Crowdfunding advocates say it is an entirely new model that goes beyond traditional types of investment — but regulators do not always agree.

From non-profit causes to art projects, crowdfunding has been a powerful force. But in the U.S., and in many other countries, it encountered a serious barrier when it comes to supporting small businesses and entrepreneurs: 80-year-old securities laws which made it illegal to publicly solicit money from unaccredited investors. As a result, Americans could use their money to help entrepreneurs in developing countries through platforms such as Kiva.org but were unable to invest in their local restaurant or gym.

Even though there are, in theory, many sources of funding available to such small businesses, in practice banks are often reluctant to lend to them and angel and venture capital options are also limited outside of fast growing sectors such as IT. This made changing the antiquated law an imperative. But how to do it? The story of how crowdfunding became legalized in the U.S. is the story of how 3 guys changed the rules of the game in 460 days.

Jason Best, Zak Cassady-Dorion, and Sherwood Neiss are not politicians or lawyers – they are entrepreneurs who understood first-hand that the legal framework was limiting the potential of U.S. small businesses to grow and create jobs.

And they did something about it. By rallying the small business community around the country and working with policymakers, they succeeded. Last year the JOBS Act was passed and its Title III introduced the crowdfunding exemption to the Securities Act of 1933. It was a great example of the power of small businesses to work together on changing the policy framework to improve the entrepreneurship ecosystem.

The advocacy work continues as the new law awaits detailed regulations from the Securities and Exchange Commission. On Tuesday, Sherwood Neiss and Jason Best, joined by a diverse group of entrepreneurs and crowdfunding investors, discussed progress at an event organized at the U.S. Capitol by the Small Business & Entrepreneurship Council headed by Karen Kerrigan. They talked about the road traveled so far and the challenges ahead, sharing lessons learned that are of key relevance not just for small businesses and entrepreneurs in the U.S. but around the world.

If policy solutions and advocacy approached to fostering entrepreneurship are something you’d like to learn more about, don’t miss Sherwood Neiss and Karen Kerrigan as panelists at CIPE’s upcoming Democracy that Delivers for Entrepreneurs conference April 9-10 in Chicago!

One Response to Changing the Rules of the Game: Crowdfunding and Entrepreneurship

  1. I think #crowdfunding has the potential to change lives. Due to the financial crisis, the aid to Africa has reduced. There needed to be an alternative way to raise funds for development. That best alternative is devhope.com. The social network transfers services, not money to fund development projects. It is also an online shop. Through contributory purchase on devhope.com, all our actions indirectly fund projects. Solidarity is the motto at devhope.com. For more, go to http://devhope.com/rubrique/index.php?d=Devhope.Institution&actu=3115