Tags: crowdfunding | capital | business | venture capital

Crowdfunding Will Change Small Business Forever

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Tuesday, 18 March 2014 02:27 PM Current | Bio | Archive

America is an entrepreneurial nation. If we ever escape from the current moribund economy, it will be because small business owners prospered and created good jobs with decent wages. The large Wall Street and Main Street corporations obviously don't want to help.

Big companies really should re-think their strategy. "Crowdfunding" is going to solve the No. 1 obstacle to small business success: Capital. In the process, it may cut off the knees of certain banking industry segments.

What is crowdfunding? Think of it as a micro-sized IPO or corporate loan. Until very recently, owners had little choice but to bootstrap their startup companies with personal credit cards or "friends and family" money. State and federal securities regulations made it impractical for small companies to raise capital publicly.

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Many potentially great businesses fail simply because they run out of cash. Some (though not all) would survive and thrive if they could only tell their story and attract investor capital publicly.

This is what crowdfunding will do. The Securities and Exchange Commission is right now finalizing regulations regarding online portals that will help investors and businesses find each other. As of now, it appears companies will be able to raise up to $1 million in equity capital per year through crowdfunding.

Critically, it will be easy for investors to diversify with small amounts. The current IPO process favors those who can throw a large amount of cash into a single business. With crowdfunding, an investor with $5,000 could spread his risk by, for instance, investing $500 each in 10 promising startups from various regions and sectors.

All you need is for one of those companies to take off. Growth is much easier when you can buy on the ground floor.

Silicon Valley's venture capital firms know this very well. It is the reason some of them are billionaires today. To them, the IPO is the end of the story rather than the beginning.

The venture capitalists' specialized knowledge and contacts will keep them in business, but they're going to have more competition in the future. The same will be true for community banks. Small business loans are their bread-and-butter revenue source.

Every local merchant knows the drill. Put on your best clothes, collect your ledger books and ask the banker for another loan, so you can keep the doors open another year. This experience will be a lot different with crowdfunding.

Instead of going to the bank, you'll go on a website and tell the world what a great business you have and why they should back you. If you do it right, they will — and probably on better terms than your banker would.

I think crowdfunding could be the greatest business breakthrough in generations. There will be some hiccups along the way, but the small business capital market will be dramatically different five years from now.

Editor’s Note: Free Video — ‘Rogue Calendar’ Could Turn 490% Profits

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PatrickWatson
America is an entrepreneurial nation. If we ever escape from the current moribund economy, it will be because small business owners prospered and created good jobs with decent wages. The large Wall Street and Main Street corporations obviously don't want to help.
crowdfunding,capital,business,venture capital
495
2014-27-18
Tuesday, 18 March 2014 02:27 PM
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