Seeding a Revolution for Entrepreneurial Capital

Everyone should be talking about H.R. 2930, the Entrepreneur Access to Capital Act, but I bet you haven’t heard of the bill. Introduced in the U.S. House of Representatives in September, this bill has a provision that, in my estimation, would create more jobs than anything else tried so far in this Great Recession. While the House passed the bill in November, it hasn’t yet been reported out of committee in the Senate.

THE PROBLEM

There is no question that we are in the greatest capital crunch for entrepreneurial businesses since the Great Depression. Banks are denying loans, and the venture capital and angel market is very tight. But this bill could change the way entrepreneurs raise capital.

Ask any securities lawyer about the rules for raising $10,000, $100,000 or even $1 million, and he or she will tell you about two major obstacles:

1. You can only solicit the general public for money for a business if you are a public company or going public. Out of the millions of businesses in the United States, fewer than one-tenth of 1 percent are public or can afford the cost of going public. That leaves out 99.99 percent of all business.

2. If you are a private company (that 99.99 percent) trying to raise capital, you can only raise money from accredited investors. To be an accredited investor, you must have a net worth of $1 million outside of your home or an annual income of at least $200,000. That only represents 3 percent of the U.S. population.

THE SOLUTION

The U.S. House of Representatives passed the Entrepreneur Access to Capital Act in November, but it has stalled in the Senate Committee on Banking, Housing and Urban Affairs.

The proposed law changes that. If passed, the Entrepreneur Access to Capital Act would allow individuals to solicit others for capital for their business for up to $10,000 per person, no matter their accreditation. And businesses could raise as much as $2,000,000.

A new concept established two years ago called “crowdfunding” is the foundation for this new program. Crowdfunding uses the Internet and social media to raise capital for any kind of project or business. Businesses utilize a crowdfunding site and video to make a direct appeal for the funding. But they cannot sell any security or ownership and can only give away things like T-shirts and mugs.

Under the proposed law, those utilizing crowdfunding will be able to give away equity in their business or project legally up to $10,000 per person.

Having been in the entrepreneurial financing field since I graduated from Wharton in 1961, I can personally tell you I have never seen such an opportunity for entrepreneurs to raise seed capital for their early-stage business. And entrepreneurial ventures create jobs. And so, please, if you haven’t already, spread the word about the Entrepreneur Access to Capital Act.

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