Just like Migicovsky, thousands of individuals use platforms like Kickstarter or Indiegogo to raise the funds they need to successfully launch their creative projects. Now the Obama Administration is hoping the success of crowdfunding can boost entrepreneurs and stimulate job growth.
In April, President Obama signed the bipartisan Jumpstart Our Business Startups (JOBS) Act. It allows startups and “emerging growth companies” to crowdfund online from non-accredited investors. It also permits companies to sell up to $50 million in shares or raise up to $1 million a year before being required to register with the Securities and Exchange Commission (SEC).
With 65 percent of new jobs being created by small businesses, the Administration also expects this bill to fuel job growth. Since the recession, new business start-ups have not only taken a sharp nose dive, but those who do dare to become entrepreneurs are more likely to fail and go at it alone versus hiring employees, according to data from the Kauffman Index of Entrepreneurial Activity.
Sean Greene, the associate administrator for investment and innovation for the Small Business Association, said the reason for this slow growth is due to the lack of capital.
“All of the traditional bootstrapping ways of accessing capital—like using credit cards or borrowing money from your home equity line of credit—don’t exist anymore,” Greene said. “We think it is incredibly important to look at more innovative approaches to obtaining capital. What’s interesting about crowdfunding is that this isn’t about going to a bank and getting a loan, businesses can help raise money from their customers or own community.”
Before the recession hit, communities of color had a much harder time raising money to start or grow businesses. However, launching a business isn’t the issue in the black community, between 2002 and 2007 the number of African American businesses increased by more than 60 percent, which is more than triple the national rate of the rest of the country. Growing and retaining our businesses are the true culprits. Despite tremendous gains, black businesses only account for 7 percent of all U.S. businesses. In addition, of the 1.9 million black-owned businesses, only 106,824 have paid employees. According to the National Urban League’s 2011 State of Urban Business, on average, white-owned businesses have more than $80,000 of initial capital while African American businesses have less than $30,000 in start-up money.
Mike Green, former journalist and CIO of BlackInnovation.org, believes this initiative could be the missing link that closes the economic gap among whites and minorities as well as removes the barriers the SEC rules have around risk capital investing.
“That missing piece is extremely important,” Green said. “The risk capital industry, comprised of venture capitalists and angel investors (and the government), is the fuel that propels young companies and startups, which are responsible for nearly all net new job growth in the nation since 1980. Without that fuel, minority-led startups and companies cannot grow. And the results are evident with stagnation of black and Hispanic companies.”
Green is also the co-founder of America21 Project. With a focus on STEM education and career development, capital access and high growth entrepreneurship, America21 Project’s mission is to “leverage existing assets within Black and urban American communities to create new opportunities and ensure competitiveness in the global innovation economy.”
One of the main reason’s why he along with his partners—Johnathan Holified and Chad Womack—launched America21 Project is because they believe that African Americans, including the black press and leaders, “don’t speak the language of the 21st century innovation economy.” Therefore, there will continue to be a widened wealth gap and staggering unemployment numbers within the black community. Currently, white wealth is 20 times larger than black wealth and black unemployment stands at about 14 percent compared to 7.3 percent for whites.
“Job growth and wealth creation are dependent upon participation in the realm of risk capital that was previously restricted prior to the JOBS Act,” Green said. “The crowbar that pried open the door of opportunity is the crowdfunding piece of legislation. That issue ought to be on the front cover of magazines and newspapers while radio, TV and Internet news sites should be discussing this historic piece of legislation.”
What You Can Do
The SEC will have until January 1, 2013, to set the rules and parameters of the law, which means businesses eager to raise capital through crowdfunding will have to wait at least eight months. In the meantime, there a few things you can do to prepare your business for this new platform.
1) Get your paperwork together, such as marketing materials, financial documents and brochures.
2) Perfect your pitch using video. The quality doesn’t count as much as what you have to say to your potential investors.
3) Create a buzz. You don’t have to wait until January to start your PR campaign. Begin letting people know what you’re planning now. You might get pre-commitments.