How The JOBS Act Could Change Startup Investing Forever
[Editor's note: The following article is by Ryan Caldbeck, the founder of CircleUp, an equity based crowdfunding website. He clearly has something to gain from the topic — but as an investor, he's also particularly well-informed. So we're running this guest post. But, for reference, check out these criticisms by the SEC and some politicians.]
Last week, the US House of Representatives passed the JOBS Act, a bipartisan bill aimed at supporting small businesses by making it easier for them to access capital. A key feature of the bill enables crowdfunding, the process by which small companies raise growth capital from a large number of individual investors.
While many people are debating the impact of the bill on investors, what seems lost in the debate is what types of businesses are likely to benefit, and how crowdfunding can change the way we all think about early stage investing.
Today, startup investing is reserved for the 1%. Less than 1% of Americans are ?angel? investors and less than 1% of all small businesses receive outside equity investment. (This despite significant investor returns, according to the Angel Investment Performance Project). Within this narrow band, the distribution tightens further ? a majority of all angel investments go to technology driven industries. And, 80% of angel investors are men. As a result, a vast majority of the economy ? entrepreneurs, investors, and whole industries ? are left out of this virtuous cycle.
Crowdfunding will open up new funding possibilities for these neglected areas of the economy. A good example is the consumer products industry, which comprises roughly 15% of the US economy but less than 5% of the angel investment market. Investors like to invest in what they know ? one reason technology is so well funded given the roots of angel investing in Silicon Valley. With a wider range of perspectives and backgrounds, crowdfunding investors will bring unique insights for investments in growing consumer brands that