Crowdfunding Today
Crowdfunding is focused on donations to charities and creative projects (primarily websites, films and open source software).There have been various attempts to use crowdfunding as an investment vehicle but this has always been on tenuous legal grounds. The problem is that by sharing profits with crowdfunding shares — crowdfunders should technically adhere to SEC regulations. The cost of complying to such regulations would be prohibitive for small projects.
Venture Capital Today
Venture Capitalists are typically sophisticated investors with deep pockets. They have teams of lawyers that make SEC regulations a breeze. VC firms have tough requirements for funding. They prefer to fund individuals who have already produced a successful startup. Of the 2 million small businesses started in the US every year only 600-800 receive VC funding.Disruptive Changes
The Obama Administration has proposed dropping (or reducing) SEC requirements for investments of up to $10,000 per individual totalling up to $1 million per startup.This could allow crowdfunding investors to reap rewards from eventual IPOs just as VC investors do. To take this prediction a little further, it's easy to imagine that crowdfunding shares might be bought and sold in a marketplace (pre-IPO). Such a pre-IPO marketplace would allow small and large investors alike to get in on hot startups before they hit the real markets.
In other words, Obama's proposal has the potential to transform both venture funding and the IPO business.
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