Will Crowdfunding Be A Viable Source of Raising Capital For Startups In 2016?

This excellent article, Listen for the Roar of the Crowd(Funding) - Has true equity crowdfunding finally arrived?, provides a thorough explanation of the rule changes under the JOBS act and how they will apply to companies looking to raise capital through crowdfunding.

The authors present some interesting thoughts on whether or not startups and small businesses will find crowdfunding as a viable source for raising capital. They write...  

Some of the restrictions put in place to protect unsophisticated investors, such as having reviewed or audited financial statements and requiring the use of an intermediary, will make equity crowdfunding more costly than traditional methods of raising capital from accredited investors in a private placement.

Also, companies that use the exemption must be willing to post their financial information and annual report on their websites for the world (including competitors) to view. This company information could remain confidential if, for example, Regulation D were utilized to offer securities.

Considering that the heart of crowdfunding is small investments by many unsophisticated investors, a company should consider the potential corporate governance and communication challenges of a dispersed investor base, many of whom may not otherwise be affiliated with the company.

These challenges are magnified for small businesses and start-ups, which typically have very limited personnel and financial resources.