by vivian kim
I graduated from grad school in 2009, a time when many people were going back to school in hopes of weathering the recession. While I was in school, I witnessed the abrupt turn of events from soaring salaries to massive layoffs. Many companies dissolved along with people’s jobs. I counted myself as one of the lucky ones, since I had no house, job, stocks or retirement funds to lose completely. My main concern was my student debt and earning enough to pay it down. My focus was simple: pay back loans, save money and live a full life within my means.
Easier said than done, especially in the midst of the Great Recession. Saving money in a bank was a losing strategy. I knew I was supposed to be investing, but that was difficult since everyone was waiting for the stock and housing markets to bottom out.
And if you had a small business, good luck. We can’t all get bailouts.
But Americans are resourceful. Since banks weren’t lending, people figured out different ways to get their businesses off the ground. They started crowdfunding on sites like Kickstarter, where the public could pre-pay for products that didn’t exist yet.
This didn’t go unnoticed. All this money flowing into crowdfunding meant that there was more out there, untapped. On the other hand, small businesses sorely lacked access to capital. Maybe there was a possible solution for all of us by bringing crowdfunding and small businesses together.
The only thing standing in the way was an old outdated law designed to “protect” everyday investors from a bygone era. Basically, unless you earned $200,000 a year (or $300,000 as a couple) or had $1 million in assets, you were prohibited from investing in private businesses. The reasoning was that if you didn’t make that kind of money, you wouldn’t know how to invest. No matter how educated you were, you’d lose your shirt.
Thankfully, it’s the 21st century – we have unprecedented access to information and are the most educated generation to date. Congress agreed that the ban was outdated and in 2012, the President signed the Jumpstart Our Business Startups (JOBS) Act into law. One part of that law, Title III, is Regulation Crowdfunding. It took some time to finalize all the regulations and they won’t be in effect until May 2016. Some states got tired of waiting and passed state-specific investment crowdfunding rules that their own residents and businesses can use.
Change like this is never quick. The SEC is serious about protecting investors and has tasked funding portals (approved sites that will list crowdfunding deals) with that responsibility. Platforms will need to work hard to streamline investment crowdfunding for small businesses and investors.
The thing is, my experience with wanting to invest and not having options is not unique to young people who joined the workforce during the Great Recession. In the wake of “too big to fail,” a lot of folks feel that things need to be different going forward. Investment crowdfunding presents a new option to the general public and it has the potential to radically change investing as we know it. It puts us back in control of where our money goes and gives small businesses greater access to capital. I don’t know about you but I’m excited to see what this new era brings.