A new fundraising technique called equity crowdfunding is changing the game for social entrepreneurs. Check out our article in Triple Pundit featuring one of our member businesses, ClimateStore! Here’s a sneak peak:
Will Equity Crowdfunding Accelerate Impact Investing in 2017?
By Jamie Garuti
This past May, a new world of possibilities opened up for social entrepreneurs around the country. The Securities & Exchange Commission (SEC) approved Title III, the final part of the 2012 JOBS Act. The new regulation allows for equity crowdfunding, a mechanism that ordinary people can use to become stakeholders of startups.
Prior to Title III, entrepreneurs have used platforms like Kickstarter and Indiegogo to crowdfund seed capital, launching campaigns with business plans, product demos and videos. They then invite family, friends and others in their network to contribute in return for early access to products.
Although successful, the single-product focus didn’t work for many startups launching businesses with broader missions. What’s unique about Title III is that, instead of receiving perks, supporters get a real stake in a company through stock, options or interest repaid on loans. Should they succeed, investors stand to benefit from growth which to date has only been available to angel investors and VCs.
It’s a pretty simple idea that allows entrepreneurs to raise needed money in a fraction of the time traditional methods take. Yet people have been slow to jump on the equity crowdfunding train.
Since the approval of Title III, only 186 companies have launched campaigns. Seventy-nine of them succeeded in hitting their minimum target – the minimum amount in financial commitments a company must reach in order to receive the pledged money.
All in all, the companies that did reach the target threshold received a total of $17.9 million from investors since May. This cash gave companies huge boosts, allowing many to scale up operations and hire new employees. The benefiting companies plan to create about 175 new jobs over the next 90 days, averaging out to 2.2 jobs each.
Already, equity crowdfunding is proving to be an effective tool to spur the economy and create jobs. It’s an open question whether this will also accelerate the efforts of social entrepreneurs seeking to connect with impact investors.
The tactic grabbed the attention of Climate Action Business Association (CABA), a Boston-based organization that helps local businesses take targeted action on climate change.