Congress May Pave Way For Small Investors To Crowdfund Music Startups

A bill that was recently passed by the House of Representatives opens up the possibility of music startups raising $1 to $2 million annually via social media and crowdfunding platforms without having to meet costly registration requirements. 

This bill would allow for investments by small fry, who are currently shut out of such opportunities, and provide much needed funds to music businesses that can't attract venture capital or wealthy individual investors due to current funding trends.

Rep. Patrick McHenry [R-NC10] introduced the H.R. 2930: Entrepreneur Access to Capital Act to the House which was amended and passed on Nov. 3rd. It now goes to the Senate and, if it or a similar bill is passed, to President Obama who has already expressed his support. Given the strong bipartisan support to date, a version of this bill seems quite likely to pass all gatekeepers.

This means that a music startup like Adva Mobile could focus on raising funds from small investors who would share in the profits and risks, rather than attempting to entice donations from a likely smaller pool. While artistic and nonprofit projects can often do well with crowdfunding donations, a for-profit business is a much harder sale.

The current full text of the bill allows for up to $1 million in annual investments in sums up to $10k or 10% of annual income, whichever is smaller, per investor. Annual investments can rise to $2 million if "the issuer provides potential investors with audited financial statements."

In addition, the bill allows companies to make a "general solicitation", opening up offerings via social media and Kickstarter-like platforms, to investors who are not "accredited", via "intermediaries" such as websites that do not have to register with the Securities and Exchange Commission as "broker-dealers".

There's a lot to be considered, including the possibility that such a bill will open up small investors to additional opportunities to be defrauded of funds. It also puts small businesses into the position of dealing with a much larger pool of investors who may have unrealistic expectations.

That said, such a bill could open up the potential for companies who cannot afford current registration requirements and can't interest rich people in investing to raise funds from people they've never met scattered all over the country.

Such a bill also opens up the game to indie record labels with great artists, music companies in isolated locales, music businesses founded by women and people of color and music tech startups that aren't basing their business model on programmers pushing the envelope. Even throwbacks like niche music mags and cassette labels would stand a better chance of finding investors.

This development offers a lot to be excited about, despite the potential hazards, and I look forward to seeing what happens when D.I.Y. and crowdfunded investment converge.  Who knows?  Maybe I'll soon be seeking crowdfunding for one of my incredible business ideas!

Hypebot contributor Clyde Smith maintains his freelance writing hub at Flux Research and blogs at All World Dance and This Business of Blogging. To suggest topics for Hypebot, contact: clyde(at)fluxresearch(dot)com.