Entrepreneurs can now rely on the masses to get their big break.
Earlier this month, Obama signed the Jumpstart Our Businesses Act to stimulate the job market. One of the provisions will ease regulations on businesses and allow them to raise funds and create more job positions.
Traditionally, startups had to receive their funding from larger institutional investors, such as venture capital firms or wealthy individuals known as angel investors.
However, the JOBS act allows for startups to raise funding through crowd-funding, or by receiving funding from multiple smaller sources, instead of only a few large investors. While startups had the ability to receive money from smaller investors in the past, they were not able to easily exchange equity for this funding.
“This is a game changer” Ryan Feit, a second-year MBA student, said.
Feit is the co-founder of SeedInvest, a startup focused on helping other early-stage startups raise their first rounds of funding. He also has experience with the political side of early-stage investments. Since September, he helped entrepreneur Sherwood Neiss, who lobbies in Washington D.C. to use crowd-funding to fund startups.
Feit said the act will open up many more avenues of investment for early-stage startups.
“Traditionally, entrepreneurs could only approach wealthy individuals, angel investors and venture capital firms for investment, and these groups only make up two percent of the population,” Feit said.
The JOBS act will “take [investing] from the 2 percent and give it anyone,” Feit added.
Other entrepreneurs at Penn agreed with Feit.
Samir Malik, co-founder of 1DocWay and member of the Wharton Entrepreneurship Venture Initiation Program, also believes the act will help early-stage startups.
“I think the JOBS act can free up capital” and “will help entrepreneurs raise money early on,” the 2008 Wharton and College graduate said.
However, the provision may not impact him as it only applies to early-stage entrepreneurs.
“Six months ago maybe, but now we’re raising money from institutional investors, so it does not affect us as much,” Malik added. Institutional investors are often few and invest large sums of money, whereas the JOBS act allows for smaller investments by greater amounts of people.
Jason Fiedler, a 2011 College graduate and founder of Splash.FM, a startup that allows people to indicate their favorite songs to others, believes that this will give entrepreneurship “more of a mainstream appeal.”
“Before, [investing] was restricted to this small community,” he said.
He also believes this shows that the government is responding more to entrepreneurship.
“It’s great to get recognition from the president that innovation is what drives jobs,” he said.
Popular crowd-funding websites, such as Kickstarter, can now also be an avenue for entrepreneurs to raise funding for their startups. Fiedler believes this to be “the real breakthrough” of the act.
With everyone being able to be a potential investor, “now everyone can be the judge” of a good startup, Fielder said.
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