You have an idea for a startup that could change the world, but how do you take that idea and make it a reality? A lot of the time the answer comes down to funding.
Availability of funding for innovative ideas is a critical component of a healthy startup ecosystem.
Fortunately, over the last few years, funding for startups has become more accessible with the growth in angel investing and the introduction of services that connect investors and entrepreneur, as well as crowdfunding platforms for everything from making an indie film to funding the development of a new iPhone app.
These solutions are playing an increasingly important role in the funding ecosystem. With the introduction of H.R. 293: Entrepreneur Access to Capital Act the role of crowdfunding could fundamentally change the way startups raise money.
Most startups rely on the sale of equity (stock) in their company to raise money. Currently, privately held companies can only raise capital from the sale of equity to people who are classified as Accredited Investors by the Securities and Exchange Commission.
This limits investment in startups to:
- A person whose net worth is in excess of $1 million, excluding the value of his or her primary residence
- A person with an income in excess of $2k for the last two years or a combined income with a spouse of $3k per year.
With the introduction of H.R. 293, and the work of organizations such as Startup Exemption and representatives like Congressman Patrick McHenry, who has championed this proposed amendment to securities laws, the restrictions on equity investments in privately held companies could be lifted.
The United States Senate will today be reviewing the House-approved Jobs Act, which contains H.R. 293 and the endorsement of President Obama. If approved, this would change the restrictions on angel investing, enabling crowdfunding of equity investments for startups and privately held companies.
With the success of services like Kickstarter for non-equity based funding, it is exciting to consider the impact this could have on the availability of funding for innovative ideas, and could lead to a big impact on the job market and overall economy over the next few years.