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In our Industrial Organization class we have just begun discussing in detail what a corporation is, who owns a corporation, and why investors invest. Crowdfunding is a new way to invest in a corporation online. The SEC recently has proposed this new form of funding for small businesses. Generally, small firms go to family, friends, or local lenders for financing yet this does not always cover the start up costs of building a business. Crowdfunding will allow individuals to invest a certain percentage of their yearly earnings into companies through the online site. This site will provide a forum for investors and entrepreneurs to discuss the business proposals and have virtual accountability.

Some worry that because it is online hackers or scams could wreck the system if put in place. This new source of funding would provide a cheaper alternative for many start-ups and possibly jump start investment in the current slow economy. Several “portal” sites already exist and hope to start up crowdfunding sites. Similar to the NYStockExchange and the entrepreneurs these sites hope attract, the sites themselves have begun to compete for a share of the market.

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  1. keesler keesler

    Is this tied to the JOBS act that was put into place this past summer? They seem to be very similar ideas. (JOBS stands for jump start our business start-ups act. This law was put into place in order to encourage funding of small businesses in the US through easing various security regulations.)

  2. paulsen paulsen

    This seems to be very risky, although I would imagine only those with the foresight to investigate the start-up they are investing in would risk a percentage of their annual earnings in this new system.

  3. winn winn

    This program has potential to significantly lower barriers to entry in (theoretically) all industries. Is this necessarily a good thing? Some industries will already have an excess of firms and — will investors know not to invest in an entrepreneur looking to create a business in a saturated market?

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