The Quest For Crowdfunding (OPINION)

Over 10 years ago, I created a company called EquityNet to connect entrepreneurs and investors through an online marketplace. The word “crowdfunding” was a year away from being coined and naturally, people thought it would never work. Nearly everyone I told about the concept believed no one would take to the Web to raise capital for their companies, let alone that investors would actually invest in those companies online.

Now with over 17,000 companies and 21,000 investors in EquityNet, I’m proud to say that we’ve grown alongside Northwest Arkansas’ dynamic entrepreneurial community and have established ourselves as pioneers within the crowdfunding industry with the largest patent portfolio of any crowdfunding platform. We’ve helped thousands of entrepreneurs raise over $340 million in capital so far.

Despite all the growth in Northwest Arkansas, and really startup communities across the U.S., fundraising is still one of the most difficult hurdles entrepreneurs face. Undercapitalization remains as one of the top reasons startups fail. For one reason or another, many entrepreneurs have simply been unable to raise the money they need for their businesses. As a result, they have begun seeking capital in new and inventive ways — namely through crowdfunding.

In many regards, crowdfunding has become a global phenomenon and is beginning to change the way companies traditionally raise money from an exclusive reliance on angel groups and venture capitalists to an appeal to the masses, allowing everyday people to invest in private companies just like they were investing on the New York Stock Exchange or Nasdaq.

Last year, for example, crowdfunding platforms from around the world generated $16.2 billion in funding transactions, a 166 percent increase from the 2013 total of $6.1 billion. Its popularity as a fundraising method is growing exponentially as research conducted by Crowdsourcing.org and the World Bank indicates $300 billion in funding transactions could occur by 2025.

Since the U.S. Jumpstart Our Business Startups Act, or JOBS Act, was signed into law in April 2012, the crowdfunding industry in the United States has helped level the playing field for entrepreneurs by providing them with greater access to a large group of investors. Title II of the JOBS Act, for example, enabled entrepreneurs to publicly advertise their need for funding to potential investors for the first time since the U.S. Securities Act of 1933. Since its implementation, Title II has proven to be vital for companies seeking the most exposure possible and has led to greater funding success for startups.

We were one of the first crowdfunding platforms to allow entrepreneurs to take advantage of Title II, not only to advertise to investors on our website, but also to syndicate their deals to websites like Marketwatch, CNBC and others. In fact, EquityNet has used its own platform to raise millions in capital for itself since 2010.

Title IV of the JOBS Act, which went into effect on June 19, is expanding funding opportunities for entrepreneurs even further. Under this set of regulations, companies can raise up to $50 million in any 12-month period. It is also the first crowdfunding law in the U.S. that allows non-accredited investors to invest in private companies. There are sets of fairly stringent rules that can raise the cost of capital associated with Title IV that may not make it viable for many companies, but it shows that the U.S. Securities and Exchange Commission is making progress in making crowdfunding investments accessible to everyone.

The last and most important part of the JOBS Act, Title III, has yet to go into effect, but it will be a game-changer for the crowdfunding industry in the U.S. once it does. Title III will allow non-accredited investors with less than $1 million in assets — basically the average American — to invest in private companies through crowdfunding, thereby injecting more capital into the private markets across the country. Not only does Title III have the potential to increase success in funding for startups, it can also help improve economies by allowing communities to invest in their local businesses and create new jobs in the process.

At EquityNet, we’re ready for it to happen, and the first place you’ll see this type of crowdfunding will be in your own back yard. 

Judd Hollas is founder and CEO of EquityNet.com, a Fayetteville-based business crowdfunding platform that includes over 120,000 entrepreneurs and investors across North America. He can be reached at 479-442-3638.