Crowdfunding promises to democratize funding of startups. But is that necessarily a good thing? Entrepreneurial finance experts Josh Lerner, Ramana Nanda, and Michael J. Roberts on the promises and problems with the newest method for funding small businesses
When Congress passed President Obama's JOBS Act in March 2012, one of the most intriguing provisions would enable crowdfunding—the ability for large groups of anonymous investors to fund startups. More than a year after the law was passed, however, the provision remains tied up in red tape waiting for the Securities and Exchange Commission to pass rules that would allow for crowdfunding investment on a large scale.
In other words, if companies are able to demonstrate a game-changing technology, or be lean enough to succeed without a second round of financing, they may succeed. Otherwise, the process will just push the bottleneck to the second phase, similar to the "Series A crunch" occurring in the early stage financing of startups today.
This article was provided with permission from Harvard Business School Working Knowledge.