State lawmakers this year passed legislation on crowd funding that went into effect Tuesday and led to this opportunity for small investors to support homegrown firms.
"It is intended to be one more tool to help
Traditional crowd funding began as an online fundraising strategy to allow the public to donate small amounts of money. More typically, the money is donated through social networking websites to help artists, musicians, filmmakers and others.
But under the new law, business can use crowd funding to attract investors.
"It's going to be really important for a lot of small businesses throughout
PETE THE PLANNER: How much risk can you stomach?
Two other states,
Previously, she said the only people who could invest in private business offerings were "accredited investors" -- those with
But Lawson, speaking at The Speak Easy, a Northside site for entrepreneurs, startups and supporters to work and collaborate, said so much more transparency and disclosure exists now because of the Internet, so this restriction on small investors is no longer needed.
Still, investors who use this vehicle need to be wary.
"Hoosiers need to be aware of the risks before they invest, and they should always do their research before investing," said state Securities Commissioner
Rules under the new law help limit the risk. Businesses who want to participate have to register with the
Investors visit the Internet host sites to find and learn about companies in which they want to invest. Funds anyone invests will be directed to an escrow account until the business has raised the amount of funds it committed to raise in a period of time it chooses.
If all the money is raised in that time period, the funds are invested in the company. If not, investors get their money back.
"We have a variety of clients who are looking at using the new law and we're expecting to have the first client use it in the next few weeks," said Smith.
Lawson doesn't expect a great influx of businesses using this method at first, but she expects it will catch on as more businesses realize its benefits. Lawson said the crowd funding could be helpful to businesses such as restaurants, breweries, organic farms, tech firms and other startups.
But it also might be a bit of a hassle.
"If you try to raise
The crowd funding looks helpful, Brown said, but it actually may be harder to raise money this way than from the traditional type of accredited investors. He also said the
Whitney agrees that limit is somewhat low if a business is trying to raise
"But from what we see in
He believes several startups that are tenants in his Innovation Center may take advantage of this opportunity to raise smaller amounts of money.
"This would give me an opportunity to invest in other businesses, too," said Whitney.
Since the Midwest, in general, is a fiscally conservative area, he expects getting people enthusiastic about investing in opportunities with greater risk may take some time.
"But once people see how it's going to affect their community," he said, "they might be more willing to invest."
For more information and to view the rules, entrepreneurs and investors can view Lawson's website, www.in.gov/sos/investinindiana, or call the Securities Division, (317) 232-6681.
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