10 reasons the $1 million crowdfunding cap should be $20 million

Share

VentureBeat | By:  | Dec 10, 2017

It’s been 18 months since the final rule of the JOBS Act went into effect, allowing equity crowdfunding. In those 18 months, everything proponents of the rule said would happen (and none of what the detractors said would happen) has become a reality. Over $82 million dollars of previously untapped capital from local investors has been committed to over 650 companies. No fraud has been perpetrated. And everyone (including investors, the Government, the Securities and Exchange Commission, and the media) has more insight into the private capital markets than has ever existed before, bringing a new level of transparency, accountability, and data analysis. This is the time to raise the maximum a company can raise from $1 million to $20 million.

Why? Entrepreneurs all across America are finally raising funds faster than they could through traditional channels. Investors now have a transparent and efficient way to support local businesses that they love and believe in by receiving information about these offerings online. Regulators have transparency into the private capital markets, an auditable trail of disclosures, and a digital footprint full of data. And our government has a jobs engine, a way to promote women- and minority-run businesses, an economic booster, and a tax engine. Not bad!

See: SEC Updates JOBS Act Amendments Including Reg CF Funding Cap

So if it’s working, why raise the cap to $20 million? Let me explain:

1. We can make it a bigger jobs engine. Data from companies that have been successful with an equity crowdfunding offering shows they hire on average 2.7 people within 90 days of a $300,000 raise. That’s about one job per every $100,000 raised. If we increase the cap to $20 million, that could equate to 200 new jobs for each issuer that raises $20 million. So raising the cap would make equity crowdfunding the Main Street jobs engine we expected it to be.

2. It will provide regulators with more transparency. Companies that raise money via equity crowdfunding file specific disclosures about their businesses, their operations, and their financial wellbeing. All of this is digitally recorded, and For the first time in 80 years, regulators can actually see where capital is flowing in the private capital markets, which can allow them to further protect investors. Increasing the limit to $20 million will attract larger firms that seek more capital down this public path. This means regulators AND investors will have real-time actionable visibility into a larger part of the private capital markets.

3. Startups can make a bigger impact. $1 million dollars is nice, but consider how much more a company can do with $20 million. Increasing the cap doesn’t mean every company would get $20 million (currently only about 50 percent of companies are successful with their campaigns and raise on average $300,000), but those that are worthy and can win over the support of the crowd can take on much greater goals.

4. Communities will get more engaged. Want to know how to engage local communities? Make them investors in the local businesses that are not just mom and pop shops but large employers and high-growth startups. They will have a vested stake in the performance of those companies, and by default these businesses will benefit from the marketing power of the community. Increasing the cap to $20 million gives local investors a greater stake in their local communities. Research shows that money invested locally circulates in the local economy rather than being sucked out.

5. We’ll see gender and minority benefits. Data my firm has been collecting proves that equity crowdfunding is democratizing access to capital among women- and minority-founded businesses. Increasing the cap to $20 million means more capital to this underserved group of founders.

Continue to the full article --> here

 

The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada.  For more information, please visit: www.ncfacanada.org

Share