Crowdfunding’s Big-Bang Moment

Crowdfunding’s Big-Bang Moment

The crowdfunding service Kickstarter reached an important milestone last week. The company’s website reported that Kickstarter has now funded over 50,000 projects, with pledges coming from over 5,000,000 individual backers. Since its founding in 2009, Kickstarter has helped fledgling projects raise nearly $1 billion in donations.

But those impressive numbers may be eclipsed by a revolution in venture financing that is only being held back by final government approval: start-ups raising actual investment funds from individuals in exchange for equity or a share of profits.

Last week, the U.S. Securities and Exchange Commission took a major step toward allowing crowdfunded equity financing.  In a 600-page proposed rulemaking, the SEC moved to implement key provisions of the 2012 Jumpstart our Business Startups Act (or JOBS Act). Passed by a large bi-partisan majority of Congress, the JOBS Act directed the agency to simplify many aspects of corporate fundraising and initial public offerings, and to enable individual investors to participate in equity campaigns for small startups.

How big a deal is this “democratization” of finance? In a recent HBR article, Paul Nunes and I introduced the term Big Bang Disruption to signify innovations that, thanks to rapidly advancing technology, come out of the box both better and cheaper than alternative solutions already in the marketplace. These upstarts don’t just bedevil incumbents –- they blow them away.  Crowdfunded equity financing has the potential to do that.

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