In recent years, the internet has proven a highly lucrative portal through which entrepreneurs could raise funds to start and/or boost their ventures. According to Kevin Woodbridge, with options such as crowdfunding and online angel investors, this platform has helped many build up formidable enterprises spanning across almost all industries. At the most basic level, these sources of funding translate into either donations or loans. Kevin Woodbridge notes that both these types of financing come with challenges that have not always made them an ideal option for all investors and the issuers.
Now thanks to the full implementation and publishing of regulations pertaining to Title III of the JOBS Act of 2012, it has become possible for business owners to legally drum up equity financing online. Kevin Woodbridge confirms that this avenue of financing has long been blocked off, due to the many ways in which investors are likely to be duped with no real recourse to recover their investment. After more than a three year wait, the Securities and Exchange Commission (SEC) has finally published regulations that make equity crowdfunding a legal means by which to raise capital online. This means that business owners can now solicit for new shareholders using online portals, within certain parameters.
For Kevin Woodbridge, this final step in making equity crowdfunding a viable option in raising capital means that entrepreneurs can now capitalize on the biggest online platform in advertising their offering. Not only can they entice online users to click through to the internet portal facilitating this investment, they can also undertake direct communication with potential investors in the same way.
Kevin Woodbridge also points out the benefit for non-accredited investors, who are usually severely restricted in such types of investment opportunities. Although the amount of money they can risk on such equity stakes is curtailed, they do still have the opportunity to buy in. According to the regulations, investors with an annual income or net worth not exceeding $100,000 may not invest more than $2,000, or 5% of the lesser of the investor’s annual income or net worth.
Many industry experts, like Kevin Woodbridge, consider this limitation to be an attempt by Congress to protect these small investors from devastating financial loss in the event these businesses fail. Kevin Woodbridge does consider this approach advisable in view of other rules that prevent investors from re-selling their stake for up to one year from the time the crowdfunding offer is taken up.
The crowdfunding issuer is also subject to a series of rules of regulations that are meant to help provide potential investors with ample information on the company they are buying into. Having to provide certain financial statements, depending on the size of the offering, and disclose the business plan is considered a good way to help investors gain stronger understanding of the risk they are undertaking. Kevin Woodbridge does however draw attention to the flip side that these and other numerous required disclosures may prove a hindrance to businesses looking to raise capital this wa
Equity crowdfunding has added a new facet in business financing for small and medium sized businesses looking to raise no more than $1 million over a year. For industry experts like Kevin Woodbridge, it remains to be seen if there will be a strong uptake in this niche given the many rules and regulations put in place. With less effort required of the issuers when considering financing options like peer-to-peer lending and crowdsourcing, it seems that the government may need to further reevaluate their approach to equity crowdfunding if it is to gain a foothold in the market. When it comes to business financing, entrepreneurs are more likely to take the path of least resistance, making it likely that equity financing may end up a failure unless reviewed.