By Ed McLaughlin and Wyn Lydecker
Crowdfunding had been an unregulated, wide-open field in which artists, game creators, filmmakers, musician, nonprofits, and entrepreneurs could raise funding for their projects from fans, supporters, and followers.
Kickstarter, IndieGoGo, Fundly, RocketHub, and over 45o other funding sites have made it relatively easy to raise money for a passion project or even a new business. The New York Times just ran an article on The Banner Saga, a new video game about Vikings sporting a retro look and feel, which was financed by fans via Kickstarter. It’s just one of many ventures taking advantage of the democratization of financing that crowdfunding has made possible.
But now the federal government is getting involved. The Obama administration signed The JOBS Act in 2012 in an effort to stimulate the economy and create jobs. The idea was to take crowdfunding further. The new law would free up more funding for small businesses by allowing unaccredited investors to make equity investments in startups via the internet. But now the SEC is involved with writing rules to regulate the equity crowdfunding process.The SEC is picking up where the JOBS Act left off.
The new rules are complicated and in many cases, not friendly to startups or potential investors. Several articles by experts who are following and analyzing the law and the proposed regulations have been posted recently, which help explain what’s going on in Washington. If you have any interest in the future of equity crowdfunding, you should read up on the topic. Or if you are brave and have a lot of time on your hands, go to the SEC’s website to read the regulations directly.
The SEC is requesting comments from the public. Now is the time to make your voice heard, if you care about where the regulations are headed. Their rules can still be changed, if enough of the crowd writes in.
We recently read an excellent summary of the rules for companies and investors, which was posted by Kiran Lingham on Equities.com: “Equity Crowdfunding Rules: 15 Things Every Entrepreneur Needs to Know Now.” Another worthwhile article on the SEC’s proposed regulations appeared on Crowdfund Insider. While the JOBS Act was supposed to make equity fundraising easier and cheaper, the pieces say that entrepreneurs may have to comply with many new regulations and make repeated filings with the SEC. As Crowdfund Insider points out, companies seeking over $500,000 in funding will have to provide two years of audited financial statements to the SEC via the crowdfunding portal. This could be very expensive and time-consuming for small businesses that don’t have ample the resources to devote to such activity. There are more red flags buried in the rules, which you can read about yourself.
Crowdfunding is an exciting innovation in financing for creative projects and startups, but it behooves all entrepreneurs to get some understanding of how the JOBS Act and the new SEC regulations will affect crowdfunding in the future. While the JOBS Act is set, the SEC’s proposed rules are not. There is still time to comment on the SEC portal, but not much. February 3, 2014 is the deadline.
Copyright © 2014 by Ed McLaughlin All rights reserved