President Obama signed a bill into law regarding the Jump-Start Our Business Start-Ups bill – also known as the JOBS act. This move has been labeled as the potential game changer for businesses in need of financing. The bill unlocked the promise of equity crowdfunding, which allowed various companies raise money from any willing investors . The JOBS act was a step forward towards allowing businesses and start-ups to have access to a big new pool of potential investors.
To be clear, the process of raising money from private investors is nothing new. However, in most countries, including the US, there have historically been rules regarding such an activity that tended to exclude the average person on the street from investing in these deals. In the US for instance, in order to invest in the equity of private companies, individuals needed to be approved accredited investors, or go through regulated middlemen, both of which limited the playing field and created barriers to mass participation. The JOBS act, and the promise of equity crowdfunding, changed all that.
Nearly five years on though, equity crowdfunding continues to remain a fairly limited niche activity. Despite a few success stories, the grandiose predictions of industry-wide disruption haven’t come to fruition. In this article, we take a look at the current state of the equity crowdfunding market in the US, and assess the challenges it needs to overcome in order to live up to its promises.
Growing, but Still Small
The current state of the equity crowdfunding market in the US can be summarized quite easily: The market continues to be very small. In the last twelve months, there have been several high-profile equity crowdfunding campaigns which have raised non-insignificant amounts of capital for early stage companies