It’s not often I get to write about proposed legislation that will actually make something less regulated, particularly when it comes to the SEC. But, it’s true. Read on. 
The House has put forth H.R. 2930, the “Entrepreneur Access to Capital Act,” which amends the Securities Act of 1933 by adding the clause that “transactions involving the issuance of securities for which the aggregate annual amount raised through the issue of the securities is $1,000,000 or less; or if the issuer provides potential investors with audited financial statements, $2,000,000 or less; [and] individual investments...are limited to the lesser of $10,000 and 10 percent of the investor’s annual income,” the transaction is considered exempt from registration with the SEC (and that’s a big deal!).
In very simple terms, this means that you can now solicit up to $2,000,000 in investment in exchange for an equity stake in your business through the popular vehicle called “crowd-sourced funding.” Crowd funding uses social media networking to find potential investors. Examples of sites that have been using this strategy include
Kickstarter (funds creative projects like product design),
RocketHub (funds independent artists and entrepreneurs), and
IndieGoGo (the biggest international funding platform). Until now, the amounts funded were pretty small (you could invest as little as $25, but you typically got a sample of the product, not an equity stake in the venture), but if this bill passes the Senate (and that’s a big if), those amounts could go up substantially.
So why wouldn’t the Senate pass the bill? One reason is that a number of people, a lot them in the legal profession, are concerned that it would encourage Internet fraud, basically unscrupulous entrepreneurs or business promoters would collect the money and wire it to an offshore account rather than investing it in the company they promoted. What’s more, someone’s grandmother, an “unsophisticated” investor, would qualify to invest a chunk of her Social Security check, something that isn’t permitted under regulated offerings where you’re required to have a substantial net worth.
But perhaps the biggest problem is that when entrepreneurs secure strangers as investors and stakeholders in their business for amounts of money that are significant, the headaches and the risk go up exponentially, especially if the business fails. That’s because these investors are seeking a real return on their investmen; ; they really don’t care about you, the entrepreneur, because they don’t know you.
I’m going to keep my eyes on this bill and you should too. It could change the face of crowd-sourced funding.
