Monday, May 16, 2011

Crowd-Funding Sites Prepare for a Financing Boom #Smallbiz

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The Securities and Exchange Commission may adopt rules to let Internet based technologies be used in fund-raising. The agency is considering to let companies use social networks such as Facebook and Twitter to raise funding by tapping thousands of small individual investors for small amounts of money, the Wall Street Journal reported.  The full WSJ post is below. 

The move is part of a larger review by the Securities and Exchange Commission into whether to ease decades-old constraints on how companies can issue new shares to the public. The new funding techniques, known as “crowd funding,” could usher in a new era of capital raising for start ups.  The technique has spread from artists looking to fund their creative works to entrepreneurs trying to bootstrap companies without giving up control to venture capitalists. Typically, a company might raise $100,000 from an Internet site where users could sign up to buy $100 worth of shares.

Crowd funding could be a cheap source of cash, competing with angel investors who specialize in giving seed rounds to start-ups. Since the amounts of money are small, the downside risk isn’t too bad for investors. But the trick will be in protecting the public from scammers who have no intention of following through on promises since many small investments can mean millions of dollars.  The SEC has rules today restricting a lot of these type of investments to "Knowledgeable Investors" who have minimum networth requirements.  Several start-up businesses that I have talked to are interested in this source of funding.
Would you invest in a business start-up this way?

Small Business News: Crowd-Funding Sites Prepare for a Boom -
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