Takes Off for Small Businesses
It’s been a four full months since the Title III equity crowdfunding provision of the Jumpstart Our Businesses (JOBS) Act went into effect, allowing small businesses and startups to raise up to $1 million annually in crowdfunded securities investments from both accredited and nonaccredited investors. As of Sept. 15, businesses had raised more than $7 million in capital investments using Title III.
Although Title III is a particularly young section of the JOBS Act, it’s been hailed as a potential game changer for small-scale financing. Whether a company’s projected growth is too flat to interest venture capitalists or an owner simply doesn’t want to end up beholden to one highly powerful investor, Title III is seen as a way to raise growth capital without sacrificing independence. Moreover, campaigns can be targeted at locals within a business’s community, helping to build a loyal customer base that maintains a stake in the company’s success.
WeFunder has tracked the growth of the equity crowdfunding industry so far, and the early statistics appear promising. More than 9,000 investors have contributed $7.14 million so far, helping to fund 29 successful offerings, three of which raised the full allotted amount of $1 million in capital. In just the past seven days, investors from the crowd have contributed $112,068 to small businesses.
For companies like stock-photography gallery Snapwire, which crowdsources made-to-order photos from over 300,000 photographers worldwide, leveraging the power of an already-engaged community led the company to immense success in its Title III equity crowdfunding campaign. In 72 hours, Snapwire had eclipsed its fundraising goal. Now, the company holds about 280 percent of its goal in investments.
“The very truthful reason we got into equity crowdfunding is that we struggled to raise capital from traditional [venture capitalists],” Chad Newell, CEO of Snapwire, told Business News Daily. “We were such a leader in doing this — nobody had run a successful campaign yet at the time. I had little expectations other than a fair degree of confidence that we’d be successful.”
For Newell, the key to success is about the market response to an idea, and Snapwire was lucky enough to have that 300,000-strong community of photographers who wanted to see the company succeed, he said.
“The crowd collectively makes the decision as to whether this is a good investment or not,” Newell said. “We’re 273 percent funded now, and we’re going for the full” legally permitted amount of $1 million.
Vincent Bradley, CEO of equity crowdfunding platform FlashFunders, said he is convinced Title III holds the potential to revolutionize finance for truly small businesses. While Bradley acknowledged that the provision is still in its infancy and there’s “work to be done,” he said equity crowdfunding holds special promise for brick-and-mortar businesses and those in highly regulated industries, such as alcohol or health care.