The JOBS Act introduced new rules that will allow individuals to invest directly in closely held ventures. Traditionally, the US has only allowed “accredited investors” with more than $1 million in assets to buy equity in private firms. Equity crowdfunding would allow anyone to invest money into companies and projects. But before regular smaller investors can jump into the game, the Securities and Exchange Commission must first sort out the details of the new rules.
Supporters of equity crowdfunding are touting it as a way to quickly and easily raise money for smaller projects that might not get attention from big backers. Others are suggesting that crowdfunding could support things such as clean energy projects, local civic projects, or DNA sequencing research.
The US architecture and real estate industries are among those that are exploring new ways to finance innovative projects, and crowdfunding has been identified as a potential source. The increasingly popular method of raising capital through web-based fundraising has the potential to attract investors to real estate projects and structures, according to a report by the American Institute of Architects (AIA). Successful buildings and projects in other countries have already been completed with the help of crowdfunding. The AIA recently urged the Securities and Exchange Commission to finalize rules for the use of equity-based crowdfunding in the US. It argues that crowdfunding has the potential to increase architects’ role in the funding phase of projects and help develop close relationships and promote their design services directly to project investors. The AIA also points out that crowdfunding projects build community support for projects and open the lines of communication between designers and the public.
Real estate developers also see the potential in crowdfunding. One New-York-based company,Prodigy Network, already crowdfunded a 66-story skyscraper in Colombia and has plans to fund a US building through numerous investors paying up to $2,000, or 5 percent of their net worth, in exchange for a share in rents and property appreciation. Prodigy and others anticipate that crowdfunding platforms are poised to change the face of real estate financing as it will ease restrictions on investments and allow more individuals to invest.
Many people criticize this type of capital raising and argue that it will only perpetuate fraud. The SEC is definitely taking its time to outline the rules for equity crowdfunding. Meanwhile, at least one notable economist predicts that the global crowdfunding industry could double its annual revenue and reach $6 billion this year with or without equity crowdfunding in the US.