- In 2011 "Crowdfunding" matured from a method to collect donations for small creative projects, to a formidable new way of investing in startups. Battleground 2012 is about whether the US should update its antiquated securities laws to allow for Crowdfunding new entrepreneurial companies.
First: What is Crowdfunding? A brief overview ...
- One of the better definitions, from venture attorney and Crowdfunding advocate Scott Edward Walker:
- What is Crowdfunding?
As the term implies, "crowdfunding" is funding from a crowd of people -- i.e., many people provide small amounts of money to finance something. Crowdfunding has its roots in charitable causes (including the advent of microfinancing to provide financial services to poor people), but has progressed to the online funding of creative projects via sites like Kickstarter and RocketHub.
- More comprehensive definitions include:
- Specifically though - the current issues and debates are surrounding investment/equity crowdfunding in the USA.Here is what you need to know about investment Crowdfunding in the USA, today:
No, startups are currently prohibited from selling stock or other securities via crowdfunding sites or social networking sites; they may, however, accept donations. This is because of federal and state securities laws which have been in place (in one form or another) since the 1930s, including the following:
• A prohibition against advertising or "general solicitation" -- which means that a company may not offer or sell securities unless there is a substantive, pre-existing relationship between the company (or a person acting on its behalf) and the prospective investor.
• Disclosure and state law compliance requirements if the investors are not "accredited investors" -- which usually makes the offering of securities too costly and onerous for a startup/
• A requirement that any intermediaries (including websites) must be registered with the SEC and applicable state securities commissions as a "broker-dealer" in order to legally accept any transaction-based compensation in connection with the sale of securities; and
• A requirement that any company that has 500 or more shareholders and total assets exceeding $10 million must register with the SEC and file periodic reports.
Here's a rollup of what has happened in the Crowdfunding universe up until the end of 2011
- In short, the startup world was excited and energized due to the introduction and passage of several bills (in the house of representatives) that updated securities laws to allow for equity crowdfunding of startups and small businesses. But then ...
In March 2012, the US House of Representatives overwhelmingly passed the "Jobs Act" which included the crowdfunding bill.
- Here's the roll call for H R 3606, Jumpstart Our Business Startups (JOBS) Act. The bill combines six separate bills. The package streamlines SEC requirements on businesses with less than $1 billion in revenue, allows companies to advertise their securities, authorizes "crowdfunding," and limits registration requirements on small companies. These are commonsense, pro-growth reforms. I voted "yes." It passed 390-23.
The Startup community is energized and hopfeful: #WeCantWait ....