Every social entrepreneur we encounter faces the same major challenge: funding. But that’s all about to change following the new rules passed by the Securities and Exchange Commission (SEC) effective on May 16th. The SEC is now giving average Americans (with no net worth or income requirements) the power to make equity investments through crowdfunding. So what does this mean for social enterprises organized as for profit organizations? They will be able to obtain equity investments from individuals that are passionate about their mission. Organizations can raise up to $1 million every 12 months which could fast track expansion and expand social reach.
We’ve all heard of crowdfunding platforms such as Kickstarter and Indiegogo where supporters can donate money to a company’s campaign, but what benefit does that serve the individual? A thank you email, a tshirt, and, if you’re lucky, a few company updates. Now those donors can have a more formal role in the company- investor. Who better invest in your company than the customers and fans you already serve?
This idea isn’t new; in fact other parts of the world (Australia, the UK, and Canada) have been doing impact equity crowdfunding for years. The UK’s early adoption of the equity crowdfunding model gives investors who want to be involved with companies that have a social mission a way to do so. The various crowdfunding platforms allow investments through transferable debt which can be sold on crowdfunding portal websites. For socially beneficial companies/projects, investments can be made through repayable loans when equity is not applicable. UK native Karen Darby has launched her own crowdfunding site, CrowdMission, which is aimed at fundraising social, environmental, and health focused startups. While announcing the launch of her new impact equity crowdfunding platform, Darby said” “we believe there’s not only a new breed of social entrepreneurs emerging, but there’s a new breed of investor- ordinary people who want to back good businesses.”
The SEC’s new rules don’t come without risk, however, as Vincent Petrescu, CEO of crowdfunding portal TruCrowd, points out saying “nobody knows what company will go big and what will fail. Investing is always risky; the difference now is you can try your hand at $100, not $100,000”. While there’s a slim chance you or I could find and bankroll the next Uber, we can take this opportunity to show our support for social enterprises whose missions we stand behind and help them by becoming an investor.