This past May, a new law allowing equity crowdfunding opened a new world of possibilities for social entrepreneurs around the country. The Securities & Exchange Commission (SEC) approved Title III, the final part of the 2012 JOBS Act. The new regulation allows for equity crowdfunding, a mechanism that ordinary people can use to become stakeholders of startups.
Prior to Title III, entrepreneurs have used platforms like Kickstarter and Indiegogo to crowdfund seed capital, launching campaigns with business plans, product demos and videos. They then invite family, friends and others in their network to contribute in return for early access to products.
Although successful, the single-product focus didn’t work for many startups launching businesses with broader missions. What’s unique about Title III is that, instead of receiving perks, supporters get a real stake in a company through stock, options or interest repaid on loans. Should they succeed, investors stand to benefit from growth which to date has only been available to angel investors and VCs.
It’s a pretty simple idea that allows entrepreneurs to raise needed money in a fraction of the time traditional methods take. Yet people have been slow to jump on the equity crowdfunding train. Whether or not it will accelerate their efforts to connect with impact investors is still an open question.