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Crowdfunding has been a method of raising capital for close to a decade, with the first recorded public use of the term in 2006 by the founder of Fundavlog. Popularized on a wider scale through breakout crowdfunding campaigns like the Pebble E-Paper Watch and Oculus Rift, the term ‘crowdfunding’ only really began to be used by the masses in the last few years.
Since then, two types of crowdfunding have emerged as viable paths to raise capital: rewards and equity. Rewards crowdfunding has been a legal form of fundraising since its inception, often used by charities, local organizations, and new companies looking to pre-sell their product.
Equity crowdfunding is a tool for businesses only. Entrepreneurs looking for investors and willing to give away equity in their company can utilize equity crowdfunding through sites like Fundable to grow and scale their company. Unlike rewards crowdfunding, equity crowdfunding has not always been a legal method of raising capital and has only recently emerged as a new method for funding a business.
The JOBS Act: Where it All Began
The JOBS Act passed with bipartisan support in the house and senate, and was signed into law by President Obama on April 5, 2012. The passing of the Act gave politicians an opportunity to unite in their respect of small business and entrepreneurship.
It also gave President Obama, in the midst of his campaign for a second term in presidency, a step forward on many of the initiatives he began during his first term to encourage small-business growth. After signing the Act, Obama gave a firm endorsement of the fundamental purpose of the JOBS Act: “We are a nation of doers. We think big. We take risks. This is a country that’s always been on the cutting edge. The reason is, America has always had the most daring entrepreneurs. When their businesses take off, more people get employed.”
Two sections of the JOBS Act directly pertained to equity crowdfunding: Titles II and III. Title II of the JOBS Act was fully enacted in September 2013. Also known as General Solicitation, Title II allows companies to publicly share and advertise that they are seeking investments. Entrepreneurs can now easily harness the power of crowdfunding, social media, and the Internet to share their deal with investors across the country.