In July of this year, Republican Patrick McHenry from North Carolina spearheaded two important bills. Both passed through the House in a landslide vote as part of The Fix Crowdfunding Act. The bills are designed to make it easier for smaller companies and entrepreneurs to secure more funding for their business ventures. It’s an important bill that can have a lot of impact for any business or organization seeking to use crowdfunding as a tool to secure investors.
Prior to this bill, entrepreneurs were only allowed to raise money through equity crowdfunding, and it had to come from accredited investors, who are often just the wealthy and well-established. So for smaller organizations this was not possible, as most funding comes through smaller investors, angel donors and other investments.
The original legislation surrounding crowdfunding, which was written back in 2012, included a limit on the type of “special purpose funds,” which included any type of investment that comes from one investor and used to go to a specific company or purpose. This new House bill now allows these funds, and allows the various crowdfunding portals to support these types of fundraising ventures.
In addition to the support with special purpose funds, The Fix Crowdfunding Act also gives entrepreneurs more time before they have to deal with all that regulatory paperwork and documents that must be filed with the SEC. This bill allows companies with existing revenue to raise as much as $50 million before they have to deal with disclosure agreements. If you don’t have any existing revenue, then you can raise up to $75 million before you have to deal with disclosure agreements.
“These bills are the greatest political achievement for startup and growth-company entrepreneurs since passage of the JOBS Act in 2012. Specifically, this legislation truly democratizes the access to capital for entrepreneurs by eliminating the last few major limitations in holding entrepreneurs back from using these important new regulations,” offered Ron Miller, the CEO of Start Engine Crowdfunding in a recent article for Entrepreneur.
Lastly, as part of the Support America’s Innovators Act of 2016, the pool of available investors to any qualifying fund has been raised from 100 to 250, again making it easier for entrepreneurs to find the funding needed to support their businesses. The House bills are sailing through the first steps, and still need to get passed the U.S. Senate and signed by the president before they become law, however, early signs indicate that there is a favorable outlook for these two important bills.
In the end, there is a lot of legalese and complicated language surrounding the bills, but they are all designed for investors to find projects easier and for projects to find investors. If you’ve got your eye on crowdfunding as a possible income generating tool, then you may want to spend some time investigating these new bills to see how they can help you.
This article was written by Deborah Flomberg for Small Business Pulse