There is still a lot of controversy concerning crowd funding for startup businesses. Some of this controversy is related to legality, legitimacy, and even overall effectiveness. While some crowd funding strategies have proven to be highly successful for some startup businesses, others feel better about pursuing accredited avenues. Investors also prefer to work with legitimate entities to protect their investments as well as reduce their overall risk levels.
But is crowd funding really the cure for startups? Crowd funding strategies certainly have come a long way in recent years, however, it still has yet to prove itself. However, overall, investor participation is increasing as crowd funding strategies begin to become safer and more legitimate investments.
Understanding the Status Crowd Funding and the JOBS Act
Currently, crowd funding is in limbo between Title II and Title III of the JOBS Act. The JOBS Act is referred to as the “Jumpstart Our Business Startup” Act. This law is intended to encourage the funding and support of U.S.-based businesses. This was signed into law by President Barack Obama on April 5, 2012. The JOBS Act is also referred to as Title II and Title III, as we outlined above. The reason there is so much controversy regarding this is because it can be conceived as “general solicitation”.
Title II went into effect on September 23, 2013, which now permits the public advertising of a startup’s attempt to raise funding and capital, particularly with the rise in the use of social media and technology, forcing legislation to evolve in our digital age. Title III, which promises to allow non-accredited investors to participate in crowdfunding, particularly equity crowdfunding, is still pending.
Marketing to the Right Group of Accredited Investors is Key.
Ultimately, a startup’s business success with working with accredited investors greatly depends on the group of accredited investors the business chooses to work with. However, business—and investors alike—can choose to work with a reputable and trustworthy crowd funding firm to ensure success for both parties.
Most investors prefer to collaborate and support business startups within their own niche or market as it is where they feel most comfortable. They feel they are taking less of a risk if they invest in an entity in an industry that they are well acclimated to. The tricky thing with crowd funding is that it isn’t always about how many investors a firm can take on or match up with a business startup, which can be difficult to find. All in all, it’s more about raising awareness and attention.
While crowd funding isn’t yet officially legal, it is in fact gaining attention and accredited investor participation is increasing. So is crowd funding really the best cure for business startups? When matched with the right investors, yes, crowd funding can be successful for many business startups. As outlined above, this point is key. Collaborating with the right accredited investors can be the best crowd funding strategy.