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A new bill would make it easier for new companies to raise large amounts of money from crowdfunding sites such as Kickstarter.
The bill, the Equity Crowdfunding Improvement Act of 2014, would increase the amount of capital a company can raise through crowdfunding from $1 million to $5 million. Companies also would not have to provide records of the fundraising for amounts below $3 million, an increase from the current limit of $500,000.
The bill is an update to the JOBS Act of 2012, which made it easier for many Americans to invest in small companies. Before that bill, people needed to have an income of over $200,000 dollars per year or a worth of over $1 million to invest in companies.
The JOBS Act allowed people who earn less than $100 thousand dollars per year to invest up to $2,000, or five percent of annual income, in startups.
Steve Case, co-founder of AOL and CEO of investment firm Revolution, said the new rules would encourage greater entrepreneurship by making it easier for small companies to raise money. Greater success for startups means more jobs and access to investment for the public, which was previously limited to the wealthy, he said.
Giving money to a small company is a risky investment, which was the reason for restrictions in the past, argued Mike Stocker, an attorney who represents investors.
But people engage in risky economic behavior in other areas without the same type of regulation, Case said.
“We don’t have that limitation in terms of people investing in the stock market, which is risky. We don’t have that limitation in terms people gambling in Las Vegas, which is really risky,” he said.
14 states and the District of Columbia allow companies to use crowdfunding within their own borders.
Warm up questions
- If you wanted to start a business, how would you go about doing it? How would you get the money you needed to get your business off the ground?
- Can you think of someone who is an entrepreneur? Have you ever heard the word “startup”? In what context did you hear it? (Hint: think Facebook)
- What does it mean to invest in something? How would you decide how to invest your money?
Critical thinking questions
- What is crowdfunding? What steps would you need to take to successfully have your idea crowdfunded? What website might you use?
- What are the risks and benefits of investing in something? How do you make money off an investment? Specifically, how could you make or lose money by investing in a startup company?
- Who do you think benefits most from the JOBS Act of 2012?
- Do you think the Equity Crowdfunding Improvement Act of 2014 creates greater risk for investors? If yes, explain why.
