A New Industry Is Already Being Formed Around Crowdfunding As SEC Contemplates Mandated Rules

Monday, January 07, 2013 01:04
A New Industry Is Already Being Formed Around Crowdfunding As SEC Contemplates Mandated Rules

Tags: investment strategies | regulation | sec

A whole new industry is springing up around crowdfunding even as the SEC contemplates the rules mandated by the JOBS Act that it must create. 

And young companies seeking easier access to funds to help them grow are just as eager as hedge funds and private equity investors for the opportunities crowdfunding can offer.

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Unless you have at least $10 million in sales, it’s not to private equity investors and venture capitalists. 
Entrepreneurs of small companies are hoping to attract a wider net of investors that promises to provide much easier access to capital.
The SEC is concerned that it will help bad businesses succeed initially, only to fail later as they inevitably would. Other concerns are that unsophisticated investors will be caught up in fraudulent schemes.
Rules were scheduled to take effect this month as a component of the JOBS Act (Jumpstart Our Business Startups) signed into law last April.
With or without the rules, a new industry is forming as a few crowdfunding companies are finding ways to raise funds within the current rules that require investors to be accredited.
These companies loan money to small businesses that typically would be under the radar of private equity investor interest.
The new industry can’t fully develop without the new rules but the current activity can offer a glimpse into what crowdfunding might look like while the debate continues about opening the investment net wider.
There are built-in precautions. For example, unaccredited investors can only invest $2000 annually or 5% of their income, whichever is greater.
But the implications could be significant and could begin an entirely new wave of investment at even earlier stages.
It could facilitate young entrepreneurial ventures who don’t have access to family money or money from friends.
And it will likely open a floodgate of new crowdfunding companies who may also be the next hot investment in the world of private equity and venture capital.


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