Crowdfunding will bring more hyperlocal entrepreneurs and investors to the table than ever before, according to an executive of the newly minted Crowdfunding Professionals Association (CfPA). A group of top debt and equity crowdfunding platform and industry experts launched the CfPA on May 7, 2012 in New York City to facilitate a vibrant, credible and growing global crowdfunding community under the federal JOBS Act. “Crowdfunding gives a chance to the entrepreneur who was not born into privilege to create a future for themselves based on their ability to advance an idea,” Berkeley Geddes, chair of CfPA’s executive committee, told Street Fight.
As reported in Street Fight, President Obama signed the JOBS Act into law on April 5, 2012, which allows startups and other businesses to seek up to $ 1 Million per year from small investors via crowdfunding online portals. Investors will be able to invest from $2,000 or up to ten percent of their net worth in crowdfunding offers made under the JOBS Act. The online funding portal is a new creation under the JOBS Act.
The Securities and Exchange Commission has 270 days to develop rules that will govern such portals. Today, the SEC posted its first set of Frequently Asked Questions regarding funding portals. In its FAQs, the SEC stated that funding portals will be required to register with the SEC and be a member of a national securities association. The FAQs added that the entire process remains part of the SEC’s rule making efforts. The CfPA will work with a sister organization, the Crowdfund Intermediary Regulatory Advocates (CFIRA) to facilitate a legal framework for “crowdfund investing.” Representatives of CfPA and CFIRA told Street Fight that the SEC’s FAQs are under review. CFIRA will focus exclusively on channeling industry expertise to support the SEC, the Financial Industry Regulatory Authority (FINRA), and other affected governmental and quasi-governmental entities, including state regulators, in the establishment of industry regulation, standards and best practices.
Street Fight spoke to Geddes recently about how crowdfunding could potentially change the way hyperlocal project get funded and sustain themselves.
For hyperlocal news sites and businesses, how will crowdfunding under the JOBS Act be more effective than current sources of funding?
For many communities in America and around the world, local seed funding and growth funding has virtually dried up. To the extent that an entrepreneur in these communities is able to locate funding through the crowd, it becomes, for many, one of the only options for funding. Additionally, crowdfunding will bring more entrepreneurs and investors to the table than ever before, often at a smaller scale and size of investment, but not necessarily always so. The following points illustrate further benefits of crowdfunding versus the status quo. Through crowdfunding platforms an entrepreneur can locate like-minded individuals who may take an interest in the idea, the advice, suggestions and market validation (positive or negative), which is very helpful for entrepreneurs in leading to the development of their ideas.
What other advantages are there to crowdfunding?
If the idea is crowdfunded and the idea has a chance to persist as a product or service inside of a viable company, then the entrepreneur usually ends up with a loyal fan base and customers — even before they open their doors. This leads to market validation, better products and services and a strong customer base — quicker, more efficient and stronger start-ups. In many cases, crowdfunding will redefine an entrepreneurs pathway to success. We may end up with a better process for eliminating failures, if the crowd is good at vetting our bad ideas.
Is there a better chance that hyperlocals may find funding?
Crowdfunding helps level the playing field. Under the current system, the determining factor to finding funding is often based on who you know. Through crowdfunding, entrepreneurs who do not know anyone have a chance of getting their idea validated and funded by the crowd. In crowdfunding, it is not so much who you know that will lead to funding, rather, what you know and the strength of your ideas. Isn’t that how it should be?
Geddes added that “crowdfunding has the potential of letting anyone in on the next big deal, not just Wall Street elite.”
Brian Dengler is an attorney with Vorys Legal Counsel and journalist who covers legal issues in eMedia. He is a former vice-president of AOL, Inc., a former newspaperman, and an EMMY-winning TV journalist. He teaches new media issues as an adjunct at Kent State University and formerly at Otterbein University.
Now is the time to reserve your tickets for Street Fight Summit West. Join the top minds in hyperlocal in San Francisco on June 5th.