Crowdfunding Takes Giant Leap Forward
The dirty little secret about Kickstarter and Indiegogo was that you could contribute, but you couldn’t get equity because, at least in the US, it was illegal to solicit those types of investments direct to consumers.
If you wanted to raise money for a business, there was a mountain of paperwork you had to file and compliance hurdles you had to clear before you could sell shares to individual investors.
Originally, these laws were put in place to protect individual investors from getting fleeced.
Today, anybody can set up an options trading account and short the stock market. But before the internet, that was not the case. You had to go through a broker.
Why should crowdfunding be any different? After all, if you can contribute $20 for a t-shirt or a movie ticket, why not get a be able to buy a piece of the action as well?
The JOBS Act was designed to change that. And it has. The SEC voted last week, under certain circumstances, to lift the ban on soliciting investment opportunities to unaccredited investors.
In this episode, Daniel K. Stuart, California Attorney at Law at Manatt explains the JOBS Act, which provides a legal framework for people to invest in start-ups by crowdfunding businesses online, and discusses how the new rules could radically reshape the way startups raise capital.
This interview was recorded just prior the July 10, 2013 announcement by the SEC that they’ve voted “to implement a JOBS Act requirement to lift the ban on general solicitation or general advertising for certain private securities offerings.”
The SEC’s decision to lift the general solicitation ban could be a huge stimulus for grassroots fund raising for small businesses and a way for regular folks to get in on the ground floor of investment opportunities that were previously restricted to institutional investors and high-net worth individuals.