How would you respond if I told you that a recent bill proposing a bi-partisan measure to fuel the economic recovery passed the House 407-17? You’d likely remind me of the times – congressional gridlock and partisan divisiveness. Or, perhaps you’d inquire about my apparent experimentation with what must be a very potent new drug.

For those of you hoping for the latter, I hate to disappoint. But, for those of you praying for a sign that consensus is still theoretically possible in Washington, I come bearing good news! About a month ago, the Entrepreneur Access to Capital Act (H.R.2930) passed the House in an enormous landslide. The bill is currently going through revisions and has been introduced to the Senate under the working title, the Democratizing Access to Capital Act of 2011 (S.1791.IS). In short, the bill would allow start-up companies to raise investment capital directly from individuals through crowdfunding platforms.

But, you might say, hasn’t crowdfunding already established itself with the rise of websites like these? Sure, many of these platforms have built thriving online communities and raised a significant amount of money, but they can only collect donations and are expressly prohibited from soliciting investments (with the exception of MicroPlace.com, an SEC-registered broker dealer). This means the total impact of crowdfunding websites is relatively limited.

To give a sense of scale, total charitable contributions in the US equate to about $300 billion annually, versus the nearly $30 trillion in investments assets.  More simply put, the current market for investment assets is one hundred times the size of the market for charitable contributions.  What if entrepreneurs, start-ups, and small businesses – commonly accepted as the main drivers of net new job creation – had a crack at a segment of this $30 trillion marketplace?

(It’s important to note, however, that crowdfunding can currently be used for enterprises that are not nonprofits. The funders just don’t get their money back, or a deduction.)

Early versions of the legislation include the following provisions:

• Companies may raise up to $1MM (or up to $2MM if they provide investors with audited financials)
• Investors may invest up to $10,000 or <10% of total income
• Crowdfunding intermediaries must take explicit steps to prevent fraud (debating how stringent these “steps” will be is the topic of the day for those following this legislation)

Clearly, the implications of this bill could be monumental.  The most commonly cited obstacle to scale for start-up enterprises is the dearth of reliable growth capital.  Now, rather than appealing to the same limited group of angel investors, VC firms, and philanthropists, entrepreneurs would have a shot at creating their own pools of capital by cultivating dynamic, multi-faceted communities.

This proposition is especially interesting for social enterprises.  Many social enterprises are already in the business of building grassroots community movements around particular issues like food security, public health, education, or environmental stewardship.  Take, for instance, Aya Community Markets, an extremely early stage social enterprise tackling the problem of food deserts here in DC (don’t know much about food deserts? Take a look here and here).  Currently, Aya has a community of people, online and offline, who care deeply about its mission and want to support its vision.  And, these people have done so – by volunteering, donating, and collaborating.  But not by investing.

Fast forward to a pro-crowdfunding world.  Let’s imagine that demand for local produce from Aya’s community farm grows such that Aya needs a loan to purchase a new plot of land.  It’s unlikely that any commercial bank would approve the loan.  What if Aya could post a listing for the loan on a crowdfunding platform and invite its community of supporters to collectively fund the loan in small increments?  Perhaps 10,000 supporters in the DC area could invest $100 each, which is paid back over time with interest.  Or suppose those same 10,000 each provide $100 in equity and get to claim a minority ownership stake in the community farm.  Sure, there are risks, challenges, administrative considerations…but, it’s quite a thought isn’t it?

These are untested concepts.  With the rise of impact investing, we have evidence that individuals are searching for ways to combine their investment objectives and their charitable goals.  For my money (and especially in this complicated, uncertain economy), I’d rather have the chance to invest in businesses I support, trust, and believe in, than take bets on whether the Dow is going to gain or lose 500 points tomorrow.

And, oh yeah, it’s no surprise politicians love this one – it doesn’t cost them a cent (at least directly) and it has the potential to grow businesses and create thousands of new jobs.  If you’re interested in following the legislation as it moves through the Senate, head on over to www.crowdfundinglaw.com.

Photo credit: Wade Morgen