Getting money into the hands of entrepreneurs more easily so that they can innovate and launch companies quicker is the idea behind an amendment to the 2012 JOBS Act.
U.S. Sen. Michael Bennet, D-Colo., co-authored the amendment on “crowdfunding” that was included in the federal Jumpstart Our Business Startups (JOBS) Act, which passed Congress in March. Bennet held a seminar at the University of Colorado Denver on June 8 to explain the amendment and allow small-business experts to expound on crowdfunding, which allows entrepreneurs to use the Internet to raise small investments or donations from large numbers of people.
More than 100 people attended the seminar in the Terrace Room in the Lawrence Street Center. The seminar, which included two panels of experts, was co-sponsored by the Colorado Technology Association, the Colorado Bankers Association and Cooley LLP.
Bennet said the law, which takes effect in 2013, does several things: streamlines Securities and Exchange Commission registration for crowdfunding platforms; scales the amount an individual can invest based on his or her income level; requires business plan and financial information disclosures; and provides funding platforms the flexibility to thrive while including investor protections.
“I believe this is going to be incredibly important for Colorado’s entrepreneurial community,” Bennet said. “Small businesses across the state are struggling to obtain access to capital. This is a way to solve that problem.”
Prior to the 2012 JOBS Act, companies could not use an Internet-based intermediary to offer unaccredited investors an equity interest in a company without taking the often cost-prohibitive first step of registering as a broker-dealer.
Bennet said the crowdfunding platform Kickstarter last year raised almost half as much for the arts as the National Endowment for the Arts. He noted that in 2011 about 450 funding platforms worldwide raised almost $1.5 billion with the majority of the funds coming as donations. “The number of funds raised through crowdfunding will double this year and that’s even before this crowdfunding legislation takes effect,” Bennet said. “There’s a lot of potential and velocity.”
Sitting on the first panel, which mostly represented entrepreneurs, were Steve Katsaros, CEO of Nokero International, a company that offers solar technology solutions to poor, off-the-grid communities; Dave Elchoness, co-founder and CEO of Tagwhat, a mobile encyclopedia of where you are; Jonathan Bennison, president and CEO of First Funder; and Noah Pittard, special legal counsel for Cooley LLP.
Katsaros was a student in the CU Denver Business School‘s Bard Center for Entrepreneurship from 1998-99. He said crowdfunding expedites getting services to market. “We’re in an ever-flattening world and it’s speeding up if anything,” Katsaros said. “Access to capital is often one of the primary inhibitors to innovation because most innovation costs money to bring these products and services to market. … This will be the bill that got people off their wallets and put money into play.”
Pittard and other panelists mentioned that crowdfunding promotes democratization in the startup business world. The new law allows “a bunch of people out there who are fired up about the fact that they own a tiny little sliver of your company, and they’re out there talking and promoting and evangelizing about your business.”
Elchoness said the law lowers the barrier of investment and will potentially spur many new companies to fill unmet needs in the market. No single tool will solve everyone’s funding problems, he said, but crowdfuning will be a valuable tool in any business’ arsenal, whether startup or established. “Having a structured way for the community to be aware of your product, to become participants in your product, is really incredibly invaluable.”
Bennison predicted the law, whose new rules are being fine-tuned by the SEC, will spark a new startup boom. He said it represents a rare instance where legislation drives technology, rather than the other way around. “I think this could be a pivotal time we’re living in and a pivotal piece of legislation that really defines a time when the U.S. returned to a nation of innovators.”
Katsaros pointed out that the law may spur altruistic efforts as well. “A lot of the world’s poor will benefit from these crowdfunded programs if social enterprises are considered during this process,” he said. “It might not be all about the money that can be made (in an entity); it might be about the good that we can do as well.”
Last week, Bennet also held a seminar at Boulder Public Library. In the coming weeks seminars will also take place in Fort Collins, Colo. Springs, Durango and Grand Junction. Bennet said the Colorado feedback will be taken to the SEC where “the good people there are going to have the benefit of listening to your voices, for once.”
(Photo: U.S. Sen. Michael Bennet, D-Colo., discusses the crowdfunding amendment during a seminar at CU Denver on June 8.)