What is Crowdfunding?The basic idea is to raise money through relatively small contributions from a large number of people - combining the best of microfinance and crowdsourcing.
Why is it necessary?
- Entrepreneurs, startups, and small businesses are overlooked by conventional lenders (local banks or venture capitalists, angel investors) and have a hard time accessing credit in today's marketplace. As a result, United States capital formation and entrepreneurs suffer.
- Today in the United States, internet-based crowdfunding is utilized to raise millions of dollars for charitable organizations and non-profits.
- Other nations - such as Great Britain, Hong Kong, and the Netherlands - already offer equity-based crowdfunding opportunities to investors and startups to spur capital formation.
- Entrepreneurs and investors in the United States that communicate through internet-based platforms and offer securities are subject to costly SEC registration requirements.
- Compliance with each individual state's securities laws and rules - known as "Blue Sky Laws" - is prohibitively costly if companies are seeking to raise only small amounts of money.
- The SEC's general solicitation ban restricts companies from using modern communications to inform and connect to investors.
- Creates a crowdfunding exemption from SEC regulations for firms raising $1 million or $2 million if the issuer provides potential investors with audited financial statements.
- Individual investments limited to $10,000 or 10 percent of an investor's annual income, whichever is lesser.
- Preempt Blue Sky Laws and eliminate the application of the ban on general solicitation for issuers relying on the crowdfunding exemption.
- Excludes crowdfunding investors from counting as shareholders for the purposes of calculating the 499-shareholder cap under 12(g) of the Securities Exchange Act.
- "Pennies From Many" (op-ed) - The New York Times, September 25, 2011
- "House Panel Approves Startup Bills, Paving Way for Floor Votes" - The Wall Street Journal, October 26, 2011
- "Is crowdfunding startups a solution, or just another problem?" - GigaOM, November 1, 2011
- "Three Cheers for Cong. Patrick McHenry (R-NC)" - The Yorktown Patriot, November 2, 2011
- "JOBS Act will boost small business" - The Examiner, February, 23, 2012