In the US, the Jumpstart Our Business Startups Act (known as the Jobs Act) was passed by Congress last month. The acronym cleverly links liberalisation of capital markets with boosting job growth.
Significantly, the act is designed to give a boost to initial public offerings - the issue of new shares on the stock market - which has been a traditional source of funding for young companies. This market has been dormant of late and the Jobs Act is designed to make the process easier by releasing young companies from some of the regulatory burdens they face in the US - thereby helping them to raise equity capital more easily. The theory is that more capital will lead to more business activity and jobs will follow.
With banks also under pressure to boost capital ratios, and the dampening effect this has had on lending, equity funding can be an important alternative to support economic activity. Online crowdfunding platforms are expected to make substantial use of this newer, freer regime.
Growing in popularity
Here in the UK, crowdfunding is growing in popularity. According to the BBC, the equity crowdfunding platform Crowdcube, based in Exeter, Devon, has raised more than £2.5m to fund UK businesses - including itself. The link to jobs has also been noted: the company says these investments have led to the creation of 320 posts.
Crowdfunding has also played an important role in filling some of the gaps created by the drastic reductions in UK public spending. One example of this is a recent endeavour by Spacehive, a new community development crowdfunding platform, which helped to secure much-needed top-up funding to begin construction of a community centre in the village of Glyncoch, Rhondda Cynon Taf.
Had they been unable to use Spacehive for the final £30k or £40k, a project that took years to design, develop and fund would have been abandoned. Spacehive helped Glyncoch raise the necessary final sums, with the assistance of well-followed Tweeters such as Stephen Fry.
Others in development
Crowdcube and Spacehive are not alone. There are many others in development and a few more that already exist, such as Buzzbnk, which helps to connect people and projects online. On some of the newer crowdfunding platforms supporters are also able to use the site to offer non-financial forms of assistance to the causes they support.
Of course, the granddaddy site of this type is JustGiving, which recently sent customers an announcement that more than £1bn has been raised through the website for UK charities. JustGiving expanded early into the US market and is now extending its reach into other territories.
The bottom line is that crowdfunding is a hot new area - and the UK, with its relatively liberal legal and regulatory structure and many creative and successful crowdfunding endeavours, has proved itself to be a leader in this area. So if you have not yet explored how to use crowdfunding to achieve your aims, now is the time to start.