You Can Crowdfund a Politician but you Can’t Crowdfund an Entrepreneur?

On Tuesday January 24, 2012 President Obama delivered the State of the Union Address.  He highlighted the challenges the economy faces and the direction in which we need to take the country.   One of the nation’s biggest challenges he highlighted was unemployment.  Obviously, jobs are the solution to unemployment.  Crowdfund Investing (CFI) also known as equity-based crowdfunding, is a zero-cost government solution to the jobs crisis. CFI allows the community to fund their local entrepreneurs to spur innovation, launch businesses and create jobs.  And, believe it or not, it is one of the solutions both the President and Democrats & Republicans in the House support.   The framework for all the bills before Congress (HR.2930, S.1791 & S.1970) came from the entrepreneurs behind The Startup Exemption.  However, until Congress legalizes it, we can’t help fund our nation’s net new job creators.

Politicians use crowdfunding daily.  It is how they fund their campaigns.  They go out to thousands of supporters and say, “Hey give me as much money as you can afford (capped, of course).  Collectively it will add up to something substantive so that I can talk about my goals, build my team, market my message and get elected (or re-elected).”  Entrepreneurs do the same thing (take an idea, make a proof of concept, build a company, and hire employees to market and grow) but only with accredited investors (aka millionaires).  Here’s the ironic part.  It is legal for politicians to go to the masses but illegal for entrepreneurs to do the same thing.

When it comes to crowdfunding, entrepreneurs are held to a different standard than politicians. Yet politicians constantly look to them as the solution to our economic woes.  Why are there rules on how much money one has to make in order to give to an entrepreneur but there are none when it comes to politicians?  100% of Americans can give to politicians of their choice but only 5% of the wealthiest Americans can invest in entrepreneurs to create jobs.  This doesn't seem right.   The rationale, according to the opponents to Crowdfund Investing is that Americans aren’t sophisticated enough to understand the risks inherent in investing in startups.  They don’t understand that there are bad actors in the marketplace.  They are gullible and believe anything anyone says.

If they don’t think people are sophisticated enough to decide how to invest a few thousand dollars in a venture, why do they think they are smart enough to choose the right candidates?   Why do we allow people the freedom to use their money as they wish when it comes to crowdfunding politicians but we don’t give them the same freedom to use their money as they wish when it comes to investing in startups and entrepreneurs?  Are we to assume that there’s no fraud in politics?  Should the supporters of Representative Weiner or presidential candidate Herman Cain get refunds?

This election season, over half a billion dollars will go to fund the campaigns of many a politician.  Imagine the impact we could have on our economy if those same dollars went into starting new businesses?  Businesses create jobs; jobs provide income, which consumers spend in order to live.  Increased consumer spending stimulates the economy. This will get us out of the recession.

The conclusion is simple.  If people are deemed smart enough to invest in the right politician, they should be able to do the same, freely, in a business.   The time is now to change the security laws that were written 80 years ago.  The Internet can allow investors to identify those ideas they deem worthy and fund them with the same dollars they spend on political campaigns.  The only difference is instead of funding political commercials they will be funding the Nation's net job creators. Crowdfund Investing is the mechanism to allow it all to happen. Legalize it!

Ps – The statisticians at The Startup Exemption performed some analysis on entrepreneurship based on data from the Census, the SBA and the Kauffman Institute.  If Crowdfund Investing is legalized over the next 5 years over 500,000 companies will launch that have the potential to create 1.5M jobs.

Post Author: Sherwood Neiss. As a 3-time INC500 winner whose company won E&Ys Entrepreneur of the Year, Sherwood understands the keys to entrepreneurial success from concept to company to sale.

Currently he leading the charge in Washington, DC to advocate for the SEC to update the securities laws to make it legal for groups of people to pool small dollar amounts of money together to invest in startups aka Crowdfund Investing. He is Chief Advocate of the Startup Exemption