JOBS Act Delays Not Stopping Crowdfunding Industry from Moving Forward

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Women now have an advantage in this new way to access capital. Here's where things stand a year after the JOBS Act was signed into law. By Elizabeth Smith Kulik (Co-founder & CEO, ProHatch)

On April 5, 2012, President Obama signed the JOBS Act into law, which legalized equity and debt-based crowdfunding, and paved the way for private small businesses to raise capital via the crowd.

Now, one year later, entrepreneurs and investors alike are still waiting on the rules to be put in place for Titles II and III of the JOBS Act.

Though there have been regulatory delays, the crowdfunding industry has made immense strides over the past year. In fact, many platforms have launched donations and rewards-based crowdfunding and some venture capital firms have even legally moved forward with some form of equity-based crowdfunding. Crowdfunding is a space unencumbered by traditional biases that can be found in mainstream financing circles and thus can be a powerful forum and funding channel for women entrepreneurs.

Despite the fact that women now comprise a little more than half of the nation’s workforce, women-owned businesses are woefully underrepresented in the amount of venture capital and angel investment they receive. With crowdfunding, your great idea is what “rules the day” – not your gender or ethnicity.  Therefore, women entrepreneurs should take note of the latest developments in crowdfunding, particularly if they are in the capital-raising process. A few are outlined below.

Businesses Can Already Capitalize on Crowdfunding

If you’re familiar with crowdfunding news at all, you’ve probably heard of Pebble Watch, which raised more than $10 million through pre-sales via a popular crowdfunding portal. While the majority of crowdfunding campaigns will not be this successful, the fact that more than 68,000 contributed to funding the company’s product launch is a telling example of how the capitalization process is being democratized in the era of social networking and sharing.

Business incubators and accelerators, which foster the growth of high-potential startups, are starting to implement rewards-based crowdfunding into their programs. We at ProHatch have even begun our own incubator program of sorts, where we intend to mentor and guide promising entrepreneurs from across the country through the crowdfunding process. ProHatch will even be launching a Women & Crowdfunding Incubator in the next month.

Crowdfunding: Not Just for High-Tech

Traditional venture capital firms and angel investors disproportionately fund high-tech, mobile apps, software and related types of projects – leaving other would-be profitable startups without many options for seeding financing. I and other industry analysts believe that crowdfunding can be applied to many types of projects, be they consumer goods, real estate or non-profits. Banks usually require personal guarantees and a three-year record of profitability or more – something most entrepreneurs cannot demonstrate. With donation- and rewards-based crowdfunding, a community can come together to support businesses that will in turn create more jobs, increase tax revenue and foster innovation in the area. Even film production is moving online – Inocente, a crowdfunded film, won this year’s Academy Award for best documentary short.

Investor and Startup Education Initiatives

Even before the JOBS Act was signed into law, naysayers said that equity crowdfunding would open the floodgates for fraudulent or unscrupulous activity. Other countries, like Australia and the UK, who have already adopted some form of equity crowdfunding, have reported no instances of fraud.

Nonetheless, we take precautionary measures and investor education very seriously. Most crowdfunding portals have dedicated knowledge centers replete with papers, videos and other materials that encourage future investors to thoroughly vet any project they are considering funding. Additionally, the industry has a whole has cooperatively worked with regulatory authorities to come up with workable safeguards and best practices once equity crowdfunding does go live. Perhaps the best advice I could give is this: Invest in what and who you know.

Women 2.0 readers: How do you think the JOBS Act will change the funding landscape?

About the guest blogger: Elizabeth Smith Kulik is the co-founder and CEO of ProHatch, a crowdfunding incubator that offers best-in-class business and social advisory services, and partners with entrepreneurs, start-ups, SMBs and communities to optimize their crowdfunding goals. Elizabeth has earned an international reputation for mastering complex business problems and has created and executed development, acquisitions, dispositions, repositioning and growth strategies for more than $75 billion of institutional operating company and real estate investments. Photo credit: Leader Nancy Pelosi via Flickr.