“Friend” for Funding: Are social networks the future of startup funding?

by Matt Diamond November 10 2011, 16:40
Soon, entrepreneurs may be able offer their Facebook “friends” and Twitter “followers” more than just virtual friendship and updates on what they had for breakfast. They may soon be able to offer equity stakes in their business. In an increasingly rare instance of bipartisanship, last Thursday (Nov. 3) the House passed both the Entrepreneur Access to Capital Act (“Entrepreneur Act”) and the Small Company Capital Formation Act (“Small Company Act”), each aimed at spurring small business growth through the method of “crowdfunding,” “a form of capital raising whereby groups of people pool money, typically comprised of very small individual contributions, to support an effort by others to accomplish a specific goal.” If approved by the Senate, the bills would allow entrepreneurs to use online social networks to solicit small equity investments in enterprises, a capital raising strategy that is illegal under current securities law. However, some warn that, if passed, the legislation will increase the risk of securities fraud and speculative risk to investors among other things. [More]

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