Small Businesses, The JOBS Act, and Crowdfunding
For small business owners, crowdfunding is a strategy that provides capital. Indeed, often a small business needs money to start or move ahead with new investment ventures. When internal funds are low, a bank loan is a possibility but with higher credit standards this is no longer a guaranteed option. However, in part of the JOBS Act, crowdfunding has become a viable alternative allowing outside parties to contribute funds to a small business in return for a share in the ownership of future profits. This is similar to investing in a stock but that is where the trouble begins. Stocks are risky and you need to properly asses the given risks before making an investment decision. The same is true for the small businesses that seek crowdfunding but given that a vast number of new small business startups wind up failing. This adds risk and although any venture capitalist or private equity fund is well equipped to judge the uncertainties, the average person on Main Street who can now invest in these ventures as a part of the JOBS Act is severely less suited for judging a startup’s risks. As you can see, exactly who should be allowed to invest in these risker projects is highly debatable. One group, the North American Securities Administrators Association (NASAA) has a new leader and he is already attempting to convince legislators. Reuters continues, “Hefty failure rates among small businesses translate to an extremely risky investment, he said. While angel investors and venture capitalists have the tools to assess those risks, mom-and-pop investors do not, he said. "What we're doing now is opening that up to people who can't afford to suffer those losses," Heath Abshure said.
Another bill could force state regulators to defer to a private regulator for the ultimate say over certain investment advisers they now oversee. The ongoing swipes at state regulators' authority stem from what he calls a mistaken notion that they "add another unnecessary layer of cost and burden," Abshure said. But transactions that take place in his "backyard" are often too small for the U.S. Securities and Exchange Commission to even acknowledge, he said. "Do you honestly think anyone that's looking to raise $50,000 to $100,000 is really going to be able to call the SEC and get anything out of them?" Abshure asked.
Source - Reuters