Technology

White House Jobs Bill Could Take Crowdfunding to Next Level

By Alexander B. Howard

There have now been more than 10,000 Kickstarter projects funded, with more than $75 million dollars pledged and a 44% success rate. This lightweight model for "crowdfunding" has caught the attention of the White House, which specifically highlighted how entrepreneurs are using Kickstarter to access capital -- and how President Obama's new "American Jobs Act" could extend that access to more high-growth companies.

In a post on fueling innovation and entrepreneurship on the White House blog this morning, U.S. chief technology officer Aneesh Chopra and OSTP deputy director for policy Tom Kalil formally described the crowdfunding proposal from the White House:

America's most innovative companies need equity capital to grow and hire faster. As part of the President's Startup America initiative, the Administration will work to unlock this capital through smart regulatory changes that are consistent with investor protection. This means reducing the disproportionately high costs that smaller companies face when going public, as well as raising the cap on "mini" public offerings (Regulation A) from $5 million to $50 million. It also means responsibly allowing startups to raise money through "crowdfunding" - gathering many small-dollar investments that add up to as much as $1 million." Right now, entrepreneurs like these bakers and these gadget-makers are already using crowdfunding platforms to raise hundreds of thousands of dollars in pure donations - imagine the possibilities if these small-dollar donors became investors with a stake in the venture.

Crowdfunding as a platform for agile investment

Kalil explained more about the proposal in a call with reporters after the president's speech. "We're looking for ways to "reduce the regulatory burden on the ability of high growth entrepreneurs to raise capital and go public," he said. "We'll work with the SEC to develop a crowdfunding exemption for companies looking to raise $1 million dollars or less."

Kalil, responding to a follow up question from a MAKE Magazine editor, said that they have seen the tremendous success of platforms like Kickstarter, where small firms could raise money as grants. The top ranked idea from the White House online consultation was to allow small business to be able to raise up to one million dollars or $10,000 for an individual though a similar method, he said, in a way exempt from Security and Exchange Commission regulations. It's a really interesting idea, Kalil said, and "we want to work with SEC" to move it forward.

There are a growing number of Kickstarter projects that offer great examples of creative ideas that led to business success. TikTok, a proposal to embed iPad Nano into a wristwatch, was the largest project in Kickstarter's history. Refined into Lunatik, the product can now be found in the Apple Store. With TikTok, said Yancey Strickler, co-founder of Kickstarter, people "weren't just buying a wristwatch, they were buying a part of the story." Strickler, speaking at digital preservation conference, doesn't envisage Kickstarter replacing government, but instead helping to fill gaps in the community.

Consideration of crowdfunding is not limited to the White House, however, as Paul Spinrad explained at O'Reilly Radar earlier this year. Entrepreneur Sherwood Niess submitted written testimony to the House Government Oversight and Reform Committee on the need for a crowdfunding exception in May, in the context of hearings on the potential for regulatory change. The House Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending will be considering equity-based crowdfunding again in a hearing on connecting investors and job creators next week.

If the White House, Congress and SEC are able to work something out here, there's reason to expect that crowdfunding will be getting a lot more attention from the mainstream business press soon -- and that good ideas proposed by people willing to invest their perspiration alongside inspiration will be able to quickly access the capital they need.