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Understand the Crowdfunding Shift That Could Transform How Startups are Funded A new regulation has the potential to alter the way many startups are funded.

By Michelle Goodman

This story appears in the July 2016 issue of Entrepreneur. Subscribe »

To most people, crowdfunding means that someone invented a thermos that sings "Yankee Doodle," and it just raised $750,000 on Kickstarter. But that's about to change. In May, a regulation called Title III, a part of the Jumpstart Our Business Startups Act, clicked into effect, and it has the potential to alter the way many startups are funded -- and how people use the word crowdfunding.

The law itself, commonly known as the JOBS Act, is old news. It was passed in 2012, and part of it went into effect a year later. It initially allowed companies to publicly solicit and raise capital from "accredited investors" -- that is, people who the government determines are wealthy enough to take big investment risks, often meaning they have a net worth of at least $1 million. We're not talking Kickstarter-style funding here, where backers are essentially buying a product ahead of time, or donating in exchange for a token gift. We're talking about true investors getting equity in a company -- a very different kind of crowdfunding, available only to an affluent crowd.

In May, the masses were finally let in on the fun. Title III allows early-stage companies to raise money from "unaccredited investors" -- that is, anyone willing to pay. At long last, it seems, here's a level playing field for cash-starved startups that are too new or small to qualify for a bank loan, or to capture the imagination of deep-pocketed angel investors and venture capitalists. Now you can get money from the masses! Like Kickstarter, only with cap tables!

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