Crowdfunding could change the face of small business

By Libby Lewis, CNN

(CNN) – Did you hear about the guy who invented a smart-watch called the Pebble watch? Investors in Silicon Valley snubbed him so he turned to the crowdfunding website, Kickstarter, for help.

Get this: he raised $10 million in about a month. The people who chipped in will receive Pebble watches in return.

Pretty soon, those people will be able to do the same thing, and receive shares in a company, not just a watch. Part of the new JOBS Act changed the law so that entrepreneurs can seek investors on crowdfunding websites.

Entrepreneur Sherwood Neiss, who helped shape the legislation, says it democratizes access to capital. He says:

[2:57] “Not every entrepreneur and not every idea resides in Silicon Valley or New York City or Boston. There are brilliant ideas in Main Street cities all over around our country. Unless we can let these people with those ideas get the capital they need – and let their community fund them –”

They’ll wither, Neiss says.

But how about ordinary investors?

Entrepreneurial expert Daniel Isenberg predicts most of them will lose money.  “Unless you understand the investment process in depth,” he says, “you don’t understand the pitfalls.”