Automation AlleyCrowdfunding is an exciting new option for small businesses, entrepreneurs and startups looking for capital, and with the recent passage of legislation to regulate crowdfunding, the concept is gaining traction in the entrepreneurial community.

According to the Michigan Small Business & Technology Development Center (MI-SBTDC), crowdfunding is “a process whereby an individual or startup company uses the Internet and social media to raise capital in relatively small amounts from a large number of people.” Crowdfunding has been used to raise money for everything from a 10-foot statue of RoboCop to a company that makes wristwatches that display information from iPhones and raised significant capital by “pre-selling” the product.

On March 22, 2012, the Senate passed an amendment to the JOBS Act to expand and regulate crowdfunding. The amendment creates exemptions to the Securities Act that remove many of the barriers to investing in startups. (For more information on the exemptions created by the JOBS Act, check out this article from the MI-SBTDC.) On April 5, 2012, President Barack Obama signed the act into law, although securities regulations still need to be drafted, and it doesn’t officially go into effect until Jan. 17, 2013.

Spencer Clark is CEO of eRaise, a local startup company that’s in the process of developing a crowdfunding platform. Clark says he got involved in crowdfunding because it’s “potentially a major disrupter in online investing,” connecting entrepreneurs, small businesses and investors in a transparent environment where each group shares its motives and goals.

“And you have the opportunity, almost instantly, to get involved. You don’t have to go through an intermediary. You don’t have to go sit down with someone in person,” said Clark. “It’s really allowing the best of the online world — all that we’ve become familiar with in the last 20 years — to connect finally with the financial community, which has gotten such a bad reputation over the last five years.”

What’s significant about the JOBS Act, Clark said, is that it “will ultimately provide a new generation of young entrepreneurs and investors direct access to new sources of investment opportunities through crowdfunding, lowering the barrier to entry for startups and small businesses and increasing their potential to succeed.”

This article was submitted by Automation Alley.