Crowdfunding Act is Big Money for Small Businesses

A term heard more and more in the business world is “crowdfunding” – defined as a way of funding a project or business by raising small amounts of money from many people.” This is usually done through the Internet, using companies such as Kickstarter, Fundable, Lucky Ant, Indiegogo, just to name a few.

Kickstarter, business capital, Illinois Business LawyerLast year, Congress passed the CROWDFUND Act, which limits the amounts that an organization or individual can raise via crowdfunding to $1 million. There is also a limit to how much a person can invest – only ten percent of their annual income.

Despite those limits, crowdfunding appears to be a profitable avenue for organizations to take to raise capital. According to the company massolution, more than $2.7 billion was raised globally via crowdfunding in 2012. That was an increase of over 80 percent from 2011. This year the prediction is that over $5 billion will be raised.

Typically, a campaign is run by first creating a profile on one of the crowdfunding companies’ websites. The profile explains what the project or business enterprise is all about and what the financial goal is. There is a deadline for the project to meet the goal and in most campaigns, if the goal is not met, the money that was raised is returned to investors.

The key to a successful crowdfunding campaign lies in how well the project is promoted, usually through social media sites, such as Facebook and Twitter.

One of the most successful crowdfunding projects is the Star Citizen campaign. Presented on Kickstarter in 2011, the campaign has raised over $2 million to date, far exceeding its original $500,000 goal. Star Citizen, manufactured by Roberts Space Industries, is a combat stimulator video game.

Because of the CROWDFUNDING Act, the Securities and Exchange Commission (SEC) will be setting up new rules and regulations. There are so many important laws that business owners need to be aware of when dealing with investors, as well as other issues involving small companies. It’s important to consult with a knowledgeable Naperville business attorney whenever these issues arise to make sure that you are in compliance with all government business laws.