Crowdfunding for Small Business

I have heard a consistent criticism of JOBS Act compliant equity crowdfunding. The argument is that for most businesses, the ability to merely raise one million dollars over the course of 12 months is insufficient for a business to meet its growth goals. There could be nothing further from the truth.

There are two targets for crowdfunding. The first is the one that is promoted by people far and wide. That belief is that crowdfunding is for startup companies. In my opinion, crowdfunding is, generally speaking, the worst way that a startup company can raise money. I’m sure that will be the subject of a future blog or two. There are so many things that come from the mentorship a startup receives when money comes from an angel investor or venture capital firm, and the increases in awareness and presales of products are not sufficient to overcome this advantage.

However, the other target for the crowdfunded business model is the small business. You know, the one that has somewhere between 5 to 50 employees. It does between one million to ten million dollars in revenue a year. And it needs additional capital in order to support business growth. The hundreds of thousands in profit a year is more than sufficient to satisfy the needs of Crowdfunded investors to receive a return on their investment.

The idea that there aren’t that many of these types of companies is absolutely absurd. In fact, most of the new jobs in this country are created by exactly this type of company. According to the Small Business Administration, already half the American private sector workforce works for these companies, and they are now creating 65% of all new jobs. There are a host of people who run these businesses, and they would be delighted to learn that there will soon be a new way to them to raise capital.

It would be a large mistake to discount the people who run these types of businesses. They are the ones that are going to truly improve the American economy. And crowdfunding is a great opportunity for them.

 

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Jonathan Frutkin is an attorney at The Frutkin Law Firm, PLC in Phoenix, AZ. He’s written a new book called “Equity Crowdfunding: Transforming Customers into Loyal Owners” which will be published in May, 2013.

Everyone agrees that there is only one “right” way to raise children. The problem is the disagreement about which way is right! Interestingly, the “proper way” to raise children post-industrialization is almost entirely informed by the generation of your youth. This leaves parents quite frustrated – the next generation has almost always moved on to the new way to occupy their time.

Prior to industrialization, kids were almost all raised the same way. Be quiet. Be obedient. Get up early and work hard. It was rare for children to spend much time in school; they were usually needed to work in the fields or at the family store.

But entering into the 20th century, a combination of youth labor restrictions (spurred by the 1906 publication of Upton Sinclair’s The Jungle and completed by the 1938 passage of the Fair Labor Standards Act) greatly changed what “youth” was. Instead of working in the family fields, a young person would be found playing on the baseball field – or the local sandlot. Of course, they had to go to school too. And be obedient.

Of course, with all this additional free time, kids would often find their way into trouble too. That’s a natural outgrowth of extra time and an underdeveloped brain. But the exact source of frustration for American parents has a distinct generational explanation.

Frustration of parents:

1950’s: Too much radio and hooliganism (like chewing gum).

1970’s: Too much music (stupid Rock n’ Roll) and drug use.

1990’s: Too much television and loss of respect for elders.

2010’s: Too much computer (and iPod and iPad and PSP) use and failure to ever play outdoors.

Each generation of kids latches on to a specific cultural phenomenon that to quote Will Smith, “Parents just don’t understand.” (Now guess how old I am!) Radio shows, music, television shows, and social media completely define the generation of children that were raised during those eras.

Now of course, if you fly your way over to China, you’ll notice something distinctly different. Those children aren’t playing with their computers, or watching TV, or listening to music, or even playing outdoors. Those kids are studying. And they spend a little time learning to play an instrument and a little something about dance. But they aren’t engaged in the same “wasteful” pursuits that American kids consider their birthright.

The Chinese children are noted for their obedience, their sense of family and their ability to complete complex mathematical and engineering tasks. But they are also noted for being isolated  – the one-child policy has made most homes quiet places. And they also lack entrepreneurial spirit and creativity – state-run communist industry and tight parental control squashes out these qualities.

So the result is that American kids are a lot less book smart – and they frankly make kind of lousy employees. It isn’t a surprise, since they ran around like inmates running the asylum as kids for the last four generations. You know, with their radios, music, televisions and handheld devices and whatnot. But what they gained from their youth is a shared cultural bond with their generation, and they think for themselves.

That’s why Americans are the only ones who grow up thinking that they can start the next Facebook. The culture, based around common childhood experiences, creates an environment for their success.

Of course, if we could also learn a little discipline around this place, maybe we wouldn’t have to outsource all the manufacturing to those raised in China!

 

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Jonathan Frutkin is an attorney at The Frutkin Law Firm, PLC in Phoenix, AZ. He’s written a new book called “Equity Crowdfunding: Transforming Customers into Loyal Owners” which will be published in May, 2013.

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