Crowdfunding a business is definitely one of those off the league money gathering techniques which involves small contribution from many rather than huge contributions from some. Crowdfunding a business has let medium and small scale industries in developing countries flourish lie never before. Crowdfunding a business gives opportunities to all including the investors who get an optimal chance to build their fortune. So, a few bucks in the pocket might also give you a chance crowdfunding a business and there by gearing up for exponential increase in returns.
Crowdfunding a Business and Rules of JOBS Act
JOBS act stands for Jumpstart Our Business Start-up Act. It was enforced in the year 2012. It gives opportunity for crowdfunding a business which are in their budding stage and mainstream funders like angel investors and venture capitalist do not find them lucrative to put in their funds. Such a business is more likely to get backing from petty investors. Crowdfunding a business gives opportunity to invest to people who once thought investment was not their cup of tea and it belonged to the higher class.
The SEC of US laid down rules related to equity crowdfunding while crowdfunding a business. The rules apply to start-ups as well as investors. It caps the start-up’s collection of crowdfunding to 1 million USD. It also caps the investments by investors interested in crowdfunding a business to 5% of total income for less than 100 thousand dollars annual earners and 10% for greater annual earners, both in a duration of 12 months. Also there is a cap on total investment in a 12 month duration which is 100 thousand USD.
Things to consider while crowdfunding a business
Investments in crowdfunding are hot, it doesn’t mean there is a necessity to invest in it by every individual. All kinds of interest and risks must be kept under consideration while investing in crowdfunding a business. Here are few points to consider
- Hidden liabilities associated with the start-ups: We know that getting a bank loan requires proper scrutiny and check of all the financials of the start-up. It means if a start-up is choosing crowd funding a business in place going to the bank for loan, it is quite a possibility that it might have some potential risks. Getting to know all aspects of the start-ups before investing is a wise thought.
- Hit and miss ratio: Talking about the success ration of start-ups, it is less than 2%. Any investor associating themselves to crowd funding a business must know this fact and get in to this along with the added risks of loss of capital.
- Fault in estimated evaluations: There is no genuine means by which the companies indulging crowdfunding are going to verify their evaluations as they had already cut off from the traditional means of funding from the bank. So while crowdfunding a business, the fact that facts and figures presented by them could be misleading should always be kept in mind.
Deciding to invest in crowd funding a business must never be a decision of haste. It should be properly thought and well planned.
