JOBS Act Hearings Prepare the U.S. for Expanded Crowdfunding Market

Last month I spoke to the leaders of popular crowdfunding platform RocketHub about the efforts they and others supported by the Crowdfunding Professional Association (CfPA) are making to advance the rules and safeguards for expanding Crowdfunding to equity crowdfunding for businesses with the implementation of the JOBS Act in 2013.

Mr. Alon Hillel-Tuch testifies to the SEC regarding the crowdfunding aspects of the JOBS Act in Congress on June 26.

While the actual implementation of JOBS is months away, this week?s Congressional hearings are critical to the creation of SEC guidelines and standards around the aspects of crowdfunding the JOBS Act will soon usher in.

On Tuesday (June 26, 2011) The Congressional Committee on Oversight and Government Reform held a hearing on the SEC?s efforts to implement the JOBS Act. Rep. Patrick McHenry (R-NC) chaired the hearing. RocketHub?s Co-Founder and CFO Alon Hillel-Tuch, who I interviewed in a two-part column series last month, testified on the potential the ?crowdfunding for equity? model holds for start-ups, job growth, and the US economy. For anyone interested in the full hearing, you can view the C-SPAN coverage via the following link here.

In summary, Alon Hillel-Tuch made the following points:

1. Crowdfunding democratizes fundraising.

?Traditional sources of capital have strict guidelines regarding the nature of the businesses they support, and exclude a wide range of domestic businesses,? said Alon. ?Crowdfunding is especially important for women and minority owned businesses that may not have access to traditional funding sources. Crowdfunding drives down the cost of raising capital and allows companies to leverage their natural investor base.?

2. Crowdfunding will lead to job growth.

On this point Alon said, ?As shown in the July 2010 Kaufman Foundation report, startups are the job creation engine in the American economy. Without startups there is no net job growth. Access to capital for small business is a challenge; small businesses have relied on financing from community members, as well as credit card debt, loans, and angel investors. Debt structures often come at a high cost and burden to entrepreneurs, who may lack regular cash flow, during the growth stages of their companies.?

3. Crowdfunding empowers investors.

The JOBS Act enables small investors to provide support to?capital seeking entrepreneurs,? Alon said. ?Crowdfunding portals and regulators are able to drive standardized?and understandable terms across offerings. This allows crowdfunding investors to become?educated and aware of the offering terms and risks. Investors in crowdfunding offerings are able?to clearly see the terms and success of an offering, and are able to directly communicate with the?issuer and other investors.?

In summary, the expanded rules for crowdfunding are critical as they provide investors and entrepreneurs with a ?new kind of smart money.?

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