Minorities are choosing entrepreneurship in leaps and bounds, and new crowdfunding rules may boost minority businesses. A problem that many new businesses have experienced has been funding to get their business started. Thus many have turned to private investors. Not so shockingly African American-owned businesses receive the lowest share of funding from investors, who primarily invest their money into White companies.
On October 30th, the Securities and Exchange Commission (SEC) addressed this issue and adopted Title III of the Jobs Act, which allows small companies to raise $1 million annually through crowdfunding measures.
Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.
The new measure is seen as an opportunity to open the investor base for early stage companies.
“This is what we’ve waited three years for: a true democratization of the capital formation process for small companies,” Chris Tyrrell, the chief executive of Offer Board, told Tech Crunch. “Title III is about ‘the 91 percent’—average Americans—who will soon be able to invest alongside venture capital and accredited investors in companies raising $1 million or less.”
According to The Chicago Tribune, Title III was adopted in a 3-1 vote. In addition to the
rules for business crowdfunding, the measure includes protections for would-be investors. In a given 12-month period, individual investors with an income of less than $100,000 will only be able to invest $2,000 or 5 percent of that income, whichever is greater, in small businesses.
Bill Clark, CEO of MicroVentures, a company that helps startups raise money, said half of his clients are minority businesses, and expected the new rules to benefit everyone.
These new rules may benefit women-owned businesses as well.
“We have a network of investors; let’s say 90 percent who are male that sometimes have a product more catered to females, but can’t relate,” Clark said. “I believe that with a more diverse funding base everyone can find a solution.”
Small Businesses and Entrepreneurship Council CEO Karen Kerrigan said in a statement that new crowdfunding measure will bring more capital to parties who haven’t been able to benefit before.
“This next phase of investment crowdfunding blows the market wide open,” she said, according to the Chicago Tribune “For women and minority entrepreneurs the potential is quite significant. Online platforms will continue to grow, diversify, and serve niche markets. Investors will be in search of quality businesses to invest in — regardless of gender, race or location.”
The new rules will most likely take effect in late January.