One of the biggest roadblocks to innovation is access to capital. Until last year, laws written decades ago, which were designed to protect everyday investors in an information-poor environment, dictated how the financial world operated. But in the age of the Internet and social media, the old investing model may needlessly block the flow of capital.
The crowdfunding research program in the Program for Innovation in Entrepreneurial and Social Finance, founded last year at the Fung Institute, is designed to study and identify best practices in crowdfunded entrepreneurship and investing.
Now, thanks to the passage of the Jumpstart Our Business Startups (JOBS) Act in 2012 and further legislative changes, investors and companies will legally have access to crowdfunded capital. Jason Best and Sherwood Neiss, co-authors of the crowdfunding provisions of the JOBS Act, are entrepreneurs-in-residence at the Fung Institute.
The disruptive potential of crowdfunding and investing is huge. “This is the biggest securities change in the past 80 years,” says Richard Swart, the crowdfunding research director at the Fung Institute. “This will create a whole new asset class.”
The crowdfunding model is also a great platform for rapid prototyping and market studies. If an idea gets funded, it’s a good indication of its market viability.
Crowdfunding also spreads out the access to venture capital, which globally is concentrated in a few major pockets. Swart says that community-based and niche interest crowdfunding is growing rapidly. “Beyond innovation, crowdfunding is proving to be very disruptive for women, minorities and people who live and work outside of the typical venture capital arenas,” Swart says.