SEC Approves Crowdfunding. Now What?

bigdog posted on 10/29/13 at 10:23 AM



Big news for entrepreneurs and investors: last Wednesday the SEC unanimously approved new rules for “crowdfunding,” allowing start-ups to raise up to $1 million annually in capital from any investor in the country, not just super-rich “accredited” investors.
 
It’s a huge deal for small businesses eager for capital but currently blocked from accessing it – usually because they’re too small-fry for a private equity firm to consider, or because they’d rather not borrow the funds in a traditional bank loan. (That’s assuming a snail-slow bank could even be convinced to lend money to a nascent business venture.)
 
This decision green-lights a public “comment” period on the crowdfunding proposal, during and after which multiple wrinkles will still need to be ironed out. The SEC and FINRA still have to figure out what, if any, restrictions investors would need to meet before investing in a crowdfunded venture, plus figure out what paperwork and oversight the companies would need to submit to, so that investors can access some basic, vetted facts about the business before plunking down their investment dollars (or not). 
 
I’m so interested in the crowdfunding movement and in this development specifically. I know many folks who’ve funded artistic or charitable projects via Kickstarter, and I’ve noted recently how many of these appeals have shaded from “art” into “startup,” effectively taking these portals from donation sites to investment gatherers and/or market validators for their new products.
 
Curious to get an insider’s scoop on this development and what it might mean, I reached out to Luan Cox, Founder and CEO of Crowdnetic. Her company aggregates market data from private companies seeking capital investments, then makes that data available to would-be investors in a format that aims to be easy to read, analyze and use – just like market data for any publicly traded equity. (Check out a sample of Crowdnetic’s data stream on Marketwatch.com.)
 
Implemented on 9/23, Title II of the JOBS Act removed the general solicitation ban for private securities. That allows anyone to peruse these companies’ public filings, but investing in them is still limited to accredited investors. The next phase of crowdfunding will open access to every investor, not just the rich-guy accredited ones.
 
Here’s what Luan had to say about this latest development:

“This is indeed a watershed moment for retail investors and represents massive disruption of the private capital markets. What used to be very private and reserved for the 1% is now, thanks to the JOBS Act, becoming very public. The proposed rules for Title III (crowdfunding) comes on the heels of the much anticipated removal of the advertising ban for private securities (Title II) which was implemented on September 23rd of this year. In just three short weeks, we are tracking over 3,000 private companies who decided to publicly raise funds. We feel this is a strong indicator of what the impact of crowdfunding, once implemented, will be on allowing start-ups and investors to come together towards impacting our economy positively.”

What’s your take: would you stake any of your investing dollars in a crowdfunded venture? If not, why not? What about you self-employed folks – anyone out there who might consider using crowdfunding as a way to raise capital for your business?

Be good,
Don Montanaro
TradeKing CEO
www.tradeking.com

 

[image: the crowd near san marco by mararie on Flickr]


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Posted by bigdog on 10/29/13 at 10:23 AM

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