Startups can now Reignite the American economy

Startups can now greatly expand their circle of friends and family support with equity-based crowdfunding -and reignite the American economy.

As the WSJ has reported in this piece (Keeping capital close to home The Wall Street Journal (8/6)), there are good reasons to look for funding in friendlier terrain:

1. Years into the economic crisis, banks still aren’t lending. The SBA guarantees the merest trickle of loans.

2. VCs and Angels often want too great a return and too much control. Entrepreneurs may want to develop their business more fully to be in a better bargaining position for when they go to these sources.

3. Friends and family are more likely to be in the corner of “their” entrepreneur.

Using friends and family money creates perhaps even more of a moral imperative to plan and manage funds responsibly. Whether friendly investors are demanding or not, entrepreneurs should be fully prepared to succeed through sound planning.

There are approximately 8 million millionaires, and 1 million “ultra high net worth individuals” with assets of more than $5 million in the U.S. Certainly you can argue it’s well past time time for these people to stop sitting on their hands and seek out the investment opportunities in their communities and in their fields of interest to benefit themselves and the economy. But so far, they’re not.

Nature abhors a vacuum, and if wealthy Americans want to sit on their money, many “unqualified” investors do not. Crowdfunding has been the rising model for projects and community-based projects, with portals such as Rocket Hub and Kickstarter having raised $100s of millions in the past few years. Starting in January 2013, the startup exemption in the JOBS Act will allow for previously unqualified investors to use the crowdfunding method to become stakeholders in new ventures. This carries tremendous implications. With an annual cap for low income investors of $2,000, and no limit to how many people can invest, crowdfunding promises to democratize capital formation and reignite the economy, “from the middle out.”.

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