Home » SEC Votes Unanimously for Crowdfunding Rules

SEC Votes Unanimously for Crowdfunding Rules

seclogoOctober 23, 2013 – Washington, DC.  Today, the SEC took the important next step in legalizing debt and equity based crowdfunding in the USA.  In an hour-long hearing all 5 commissioners, including two conservative ones, voted in favor of updating the securities laws to the way we live our lives today via the Web and social media.  “This is a huge step forward in our fight to increase access to capital for startups and small businesses,” says Jason Best, principal of Crowdfund Capital Advisors and co-creator of the Crowdfunding framework that was signed into law by President Obama.  “The work isn’t done.  We need to review the rules and provide substantive feedback on them so they can be finalized.  We look forward to continue working closely with the industry, the Securities and Exchange Commision and FINRA to finish the process.”  

Crowdfunding is an Internet phenomenon that uses the social network and crowdfunding websites to facilitate the funding of startups and small businesses.  It takes traditional “friends and family financing” and expands it to make it faster and more efficient to attempt to raise money for a business.   With the passage of the JOBS Act in 2012, the United States paved the way to use money raised via the internet and social networks as an investment rather than a donation or pre-order for a product.  The industry has grown dramatically in volume in just a short period.  A University of California Berkeley Study claims the market size will reach almost $4B when debt and equity crowdfunding begins.

Entrepreneurs will be able to seek up to $1M/year on regulated crowdfunding websites either known as funding portals or broker/dealers.  Investors are limited as to how much they can invest based on the following income or net worth thresholds. 

Income or Net Worth

Maximum You can Invest across all crowdfund opportunities/year

Example

< $100,000

5% of your income or net worth.  Whichever is greater

  1. If you make $50,000/year you can invest up to $2,000/ year.
  2. If you have a net worth of $75,000 you can invest up to $3,750/year.

 

> $100,000

10% of your income or net worth up to $100,000

    1. If you make $150,000/year you can invest up to $15,000/ year.
    2. If you have a net worth of $775,000 you can invest up to $77,500/year.

 

Investors need to understand that investing in startups and small businesses is a high-risk investment. While entrepreneurs must submit to a fraud and background checks the reality of business failure and fraud still exists. “We believe a risk greater than fraud is failure, despite the best efforts of the entrepreneur,” say Best.  

“Entrepreneurs should take the time to educate themselves,” says Sherwood Neiss, principal at Crowdfund Capital Advisors and also co-creator of the crowdfunding framework signed into law by President Obama.  “Raising money is not easy, nor should it be.  We want entrepreneurs to be successful but we also want them to understand the seriousness and responsibility of taking investor money and reporting to them.  This is why we created Success with Crowdfunding to help entrepreneurs and investors better understand this new type of investment and how best to use it.”  

Neiss and Best aren’t done.  They just released a report in conjunction with the World Bank entitled Crowdfunding’s Potential for the Developing World.  In the report they provide a roadmap for governments interested in implementing crowdfunding ecosystems to analyze whether they have the variables necessary for the environment to flourish.  They estimate that the global opportunity for crowdfunding will exceed $90B within 20 years.  They just returned from being part of a U.S. State Department Delegation to Kuala Lumpur, Malaysia where they presented at the Global Entrepreneurship Summit and from the first Academic Symposium on Crowdfunding, held at UC Berkeley where leading academics presented research papers on key findings related to crowdfunding.

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