What’s the Latest Development?
Thanks to federal legislation that is expected to become law, start-ups will soon be allowed to raise up to $1 million annually from small (online) donations without having to disclose much besides a simple business plan. If they release audited financial statements, they can raise $2 million per year. And while start-ups are currently limited to extending token gifts in exchange for early investment, under the new bill, they will also be able to offer equity. The law will also extend the number of investors a company can take on, from 500 to 2,000, without being affected by securities regulations.
What’s the Big Idea?
Crowdfunding is meant to help start-ups find cash quick and give innovative ideas a chance to thrive among the public at large. Venture capitalists, however, worry that loosening restrictions on early-stage investment will make larger investments in later stages more risky as company valuations may be skewed by unlearnèd investment. That perception may dampen entrepreneur enthusiasm for quick crowd-sourced funds at the expense of venture capitalist investment, which also tends to come with professional connections, something small time investors cannot provide.
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