Entrepreneurs are developing ideas at a pace and in a way that traditional funding sources can't or don't want to fund. Normally, an individual investor must demonstrate a high level of personal wealth before investing in private, non-public, companies. But entrepreneurs who are developing ideas on their kitchen tables or in their garages aren't necessarily looking for that level of investment or investor. Many times, these companies are simply restaurant ideas, or local food markets, or even technology companies that need less than a million dollars to make their idea commercial and successful.
What was the problem?
What is the solution?
Crowdfunding is a state legislative solution that allows local, not wealthy investors to directly invest in local companies and retain an equity share. Traditional federal securities laws has long prohibited this practice and crowdfunding is essentially an exemption to these federal securities laws.
In Colorado, people who live in the state can invest up to $5,000 in a small business in exchange for equity. The goal is to help the community support a local restaurant, dry cleaner or other small business. Previously in the U.S., only accredited investors could buy stock in a private company, and such investors must make at least $200,000 annually and have a $1 million net worth. This state law bypassed those rule to connect more capital with entrepreneurs.