A new era for crowdfunding? – Christian Catalini

MIT Sloan Professor Christian Catalini

MIT Sloan Professor Christian Catalini

From Crowdfund Insider

Sites like Kickstarter and Indiegogo have long allowed individuals to support start-ups in exchange for pre-buying a ticket or early prototype of a product, but not for equity.  Accredited investors—with a net worth of over $1 million or who earn over $200,000 a year—have their own platforms and can invest in companies through sites like AngelList.

However, new rules enacted last May allow average people to invest in start-ups through crowdfunding sites that reward investors with equity. The rules usher in a new era of crowdfunding that is accessible to individuals of all economic backgrounds.

As part of the federal JOBS Act,Title III rules allow everyday investors the opportunity to share in the returns of the “next big idea.” This week, (Monday, July 18) for example, a new equity crowdfunding site, Republic, launched with a curated set of projects and companies that include women-founded startups such as Farm from a Box and minority-owned companies like Youngry.

While it is too early to be certain what effect the rules will have, in general, the launch of the new site gives us an opportunity to look at rules that were put into effect last May.  Touted as a “game-changer” by President Obama, these new regulations are aimed at democratizing access to capital and investment opportunities.  By opening up equity crowdfunding to the general public, broad groups of investors are now able to fund startup companies and small businesses in return for an equity stake.

Some in the business press were ecstatic when the new crowdfunding rules were released: “For the first time in 83 years, all investors—regardless of income or net worth—will be able to invest in high-potential startup companies,” trumpeted one site.

But others urged caution warning that any business with true unicorn potential (a $1 billion startup) would take advantage of investments from wealthy “accredited” investors or go the traditional angel and venture capital route

Read the full post at Crowdfund Insider.

Christian Catalini is the Fred Kayne (1960) Career Development Professor of Entrepreneurship and Assistant Professor of Technological Innovation, Entrepreneurship, and Strategic Management at the MIT Sloan School of Management.

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