Imagine your otherwise batshit crazy neighbor comes up with a big idea. Really big. The type of idea that could become the next Facebook, Twitter, Pinterest, or maybe just the next Coffee Joulies – how much would choose to invest? Let’s say you’re feeling restless and want to invest $1,000. Your neighbor thinks his idea is worth $50k. He’s willing to give you 2% equity in his idea/company if you put your $1,000 toward getting it started. He wants to go online and find 49 other investors. Today, as far as I can tell, there is no legal framework in the United States that allows this. You save $1,000 and you neighbor goes back to drinking bourbon and spying on lawn gnomes.
President Obama, in the interest of gnome privacy, is preparing to sign the JOBS Act into law on Thursday (April 5, 2012). Once this happens, startups will be able to raise up to $1 million in funding from non-accredited investors (read: regular people). This appears to accomplish two big things:
- It increases the total amount of money available to startups (theoretically should increase the number of startups that…start)
- It gives the common citizen the ability to invest a small amount in an early-stage company
There are a few clear problems that come with this Act. Namely among these is the potential for fraud and the reality that these are very high-risk investments and those seeking funding might downplay that risk (or those doing the investing might be blind to it). For startups acquiring crowdfunding the failure rate could climb as high at 90%. Despite these drawbacks, I predict this change will be a net positive for both entrepreneurs and for the US economy.
I would really love to see a Kickstarter-esque platform grow out of this. Individuals would be charged only after the funding goal was reached and each investor would receive equity instead of (or in addition to) “rewards”. Using this platform investors could keep tabs on the various companies in their portfolio and companies could easily communicate with their numerous shareholders.
What are you thoughts? As a non-accredited investor, would you consider investing in a brand new company? Add your comments below. As for the title, sorry, that already exists.
EDIT (4/7/2012) – Toygaroo closed just a few days after I posted this article, reportedly because “the growth…experienced was simply too fast and [they] were not able to secure the additional investment needed” to sustain that growth.
Image stolen from The Huffington Post - Go read their stuff too.