THE BLOG
06/24/2014 02:32 pm ET Updated Aug 24, 2014

Venture Capital For The Masses?

No question about it; you would have to have been asleep over the last year or so to have missed out on what some are referring to as the greatest boon in the investment world, perhaps ever. Some pundits are even arguing that this will turn out to be a game-changer much like the way in which Apple redefined handheld devices with the iPad. The gamechanger is crowdfunding.

Yes, it's true. At the moment the media stories are all over the place. An idea whose time has come, the end of the world as we know it and more. Negative press aside, have you considered looking to crowdfunding as an investment choice?

First, let's make sure everyone is on the same page here. What exactly is crowdfunding anyway? Traditionally, crowdfunding has referred to individuals or organizations receiving small contributions from many small parties. Since then, it has morphed into being used to fund projects and business ventures.

Loan Based
In its current form, crowdfunding shows up in two different ways. There are loan based crowdfunding ventures where the "investor" loans the money for the venture. The investor's returns come from interest payments, and if all goes well, principal payments through the end of the loan. Sort of like the now defunct Prosper site but with a bit more legitimacy.

Equity Based
The other current form and the one that has eager investors eagerly awaiting final approval is equity based crowd funding. This version of crowdfunding lets investors get in on early stage companies. For example, think where you would be if you could have put in $10,000 with the early Google. That $10,000 initial funding is most likely worth tens of millions of dollars today. So that's the possibility that is fueling all the recent excitement.

Only For The Rich?
Understand though, until very recently, as of today, like right now, you are not allowed to play ball. You see, here in the United States there are existing laws on the books that limit equity based crowdfunding to so-called "accredited investors." Accredited investors is just a fancy way of saying these are the folks with a pile of cash stashed away. To join this club, you must have a million dollars in net worth or a combined income of at least $300,000.

New Plan For Little Guy
But don't dismay. A barely noticed section of the 2012 Jumpstart Our Business Startups (JOBS) Act Title III is set to uproot hundreds of years of business funding tradition. Say goodbye to the Gentleman's Club and the white shoe law firms. This section of the JOBS Act is expected to be fully approved by the Securities and Exchange Commission (SEC) later on this year.

Get this, for the first time in history the little guy can participate in these deals. In other words, the average man or woman on the street will be able to play in the big leagues, in a playing field that up until now was not available. Now crowdfunding is on the edge of maturing into a valid investment choice.

So what does this mean to you? Consider the Google example above. Now you too can participate in equity based crowd funding. Maybe you will get in on the next Apple or Facebook. Remember, with equity investing, you get a piece of the pie. The possibilities are truly staggering.

Win Win
This story gets even better. By making equity funding available to the average "Joe," both sides profit. For example, the small investor could get in on a long term winner. Yet that is not the only option. If it were, it wouldn't be worth much more than your Saturday Lotto ticket.

Even if the equity funding doesn't result in a massive success like Google, the funding could still result in either an Initial Public Offering (IPO) or the being picked up by a larger company. As you have probably noticed in the last year or so, the super successful companies like Google and Apple have been on an acquisition spree.

There's more. Because this new crowdfunding option puts more money on the street, investing in our very own native companies, everyone benefits. Startup companies gain access to much needed capital and the relatively smaller investor gets to play a part.

Who knows, this could be the boost to the economy that everyone has been waiting for since the official end of the recession. Imagine the possibilities if we could fund the next Google, Apple and Facebook all at the same time. Who knows where this will lead.

Bottom line: if you are in the process of looking at new options for investment, this is one that deserves a look-see.