Crowdfund Investing For Dummies
Book image
Explore Book Buy On Amazon

Although crowdfund investing is not an economic cure-all, it can be an important part of the solution. It allows significant numbers of citizens to make modest investments in high-growth and/or Main Street businesses. Following are ten reasons why crowdfund investing is already becoming, or will become, a trending topic in financial industries and entrepreneurial ecosystems around the world.

Ideas go where the money is

With the proper care and feeding, businesses and entrepreneurs can flourish. Fostering an ecosystem that encourages entrepreneurship and innovation requires capital. If the financial markets or regulations in a particular country are such that capital isn’t flowing, businesses can’t get the money they need.

Entrepreneurs who are passionate enough about their ideas will go where the money is available to fund them.

Countries that wait to update their securities laws will create “brain drain” as skilled entrepreneurs head to other countries where they can fund and launch their businesses. An idea that is successfully funded in one country generally stays there and rarely returns back to the entrepreneur’s country of origin.

Ideas can turn into job-producing businesses

Ideas launch businesses. Businesses require people to grow. Good ideas can turn into great job-creating businesses. According to the Small Business Administration, all net new jobs (new jobs minus the newly unemployed) in the United States in the past 30 years were created by small businesses.

Crowdfund investing allows a community to fund local businesses and, in doing so, to create its own jobs. Local jobs provide wages that are spent on goods and services to provide for livelihoods.

Job-producing businesses are tax revenue generators

Businesses pay salaries to employees. Employees pay payroll taxes to the government. U.S. payroll taxes fund both Social Security and Medicare. The more jobs there are, the greater the tax receipts. The greater the tax receipts, the more money the government has to cover these expenses and pay for the future health of its citizens.

Economic stimulus is a byproduct of entrepreneurship and innovation

Entrepreneurship and innovation are about creating and sustaining ideas — ideas that provide solutions to problems and are purchased by consumers domestically and globally. The cash that consumers pay to a business is used to purchase goods to make the product or service, to hire employees, and to pay for things like lawyers, marketing services, and rent.

This flow of capital is a boost to an economy. Crowdfund investing encourages the flow of capital into productive businesses that can create jobs and provide tax revenue.

Local investing keeps money in the community and country

Many state and federal governments try to make their regions as attractive as possible for entrepreneurs to start businesses. Governments need to pay attention to the flow of capital generated by businesses in their communities. The easier it is for businesses to raise capital and start operations, the more money will stay in the local community and be paid in taxes to the local governments.

If a government makes it difficult to invest in businesses, people with money are still going to look to invest; they’ll just look outside their borders. Money will go where it can grow. If a government makes it hard for people to grow their money within their borders, money will flow to other countries.

Crowdfund investing leads to a larger middle class and greater stability

The global financial crisis of 2008 caused deep and lasting destruction to economies in both the developed and developing world. Many people who considered themselves middle class (and who had benefited from the growing global economy) found themselves out of work entirely or underemployed.

Crowdfund investing provides communities with a way to support their own members in building businesses that add value and create jobs. When entrepreneurial individuals have access to capital (from crowdfund investing or from more traditional sources), their businesses can grow.

The No. 1 source of net new jobs is small businesses

Many economic studies show that the No. 1 source of net new jobs is small businesses. If you want to create new jobs in your country, you need to help small businesses to start and grow. With the legalization of equity-based crowdfund investing, small businesses will have a new spigot of capital that they can use to grow their businesses and create jobs.

The web can get capital flowing

Before the Internet, banks or other third parties were the only way for individuals to pool their resources and then provide them (via the banks and their lending guidelines) to other individuals to build businesses. Now, individuals can use the web to connect people who have capital to people and businesses that need capital.

Other than face-to-face communication, there is no more transparent communication channel than the Internet. The web supports many-to-many communication that enables people to communicate their needs and allows other people to evaluate those needs and determine whether to provide the requested resources.

People want to support their countries

Don’t underestimate the power of national pride. People want to support the country and culture they know. Likewise, people want to invest in people, products, and services they know. If you’re a potential crowdfund investor and you don’t have a tight connection with someone running a crowdfund investing campaign, where are you likely to put your dollars?

Chances are, you’re going to invest in someone from one of the communities you belong to.

You don't want to be left behind

Crowdfund investing is the dawn of Web 3.0, where the social web meets capital formation. It’s a true disruption of the private capital markets. For the first time, both existing Main Street businesses and startup businesses can seek capital via the same channel and can leverage the power of their communities.

More and more countries are exploring this opportunity and working to legalize versions of crowdfund investing that are appropriate for their cultures and capital markets. This is another step in making the world a smaller and more connected place. Don’t be left behind!

About This Article

This article is from the book:

About the book authors:

Sherwood Neiss, Jason W. Best, and Zak Cassady-Dorion are the founders of Startup Exemption (developers of the crowdfund investing framework used in the 2012 JOBS Act). They deeply understand the process, rules, disclosures, and risks of capital formation from both the entrepreneur's and the investor's points of view.

This article can be found in the category: