Equity crowdfunding coming, but rules still on the way

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Equity crowdfunding is on the way, and a panel of local experts discussed the topic Wednesday during the monthly meeting of Venture Connectors.

If you have a business that needs funding and you can’t get a bank loan, you can’t get venture capital and you’ve tapped all your friends and family already, don’t despair. Equity crowdfunding is on the way. We just don’t know when.

A panel of locals discussed the topic Wednesday at the Muhammad Ali Center, during the monthly meeting of Venture Connectors, a Louisville organization that links entrepreneurs with the people who can fund their ideas.

The panelists were William D. Dawson, manager of university commercialization for EnterpriseCorp; Mary Thorsby, owner of the corporate communications company Thorsby + Associates; and Phil Shmerling, founder of InCrowd Capital, an online fund-raising platform.

Crowdfunding involves gathering together small donations from a large number of people, generally using the Internet. Right now, it’s only legal to raise equity crowdfunding to accredited investors — banks, investment companies, large employee benefits plans, charities with assets greater than $5 million and individuals with net worth of $1 million of their own or with their spouse, or who made more than $200,000 in each of the past two years.

It’s also OK to raise crowdfunding if the money is a donation or is made in exchange for a nominal gift such as a T-shirt, or to purchase a good that the company raising the crowdfunding plans to produce.

Last year, Congress passed and President Obama signed the Jumpstart Our Business Startups Act, or JOBS Act, which makes equity crowdfunding legal, subject to rules yet to come from the U.S. Securities and Exchange Commission. No one knows when the SEC will finish the rules, but some general guidelines are already known, Thorsby said.

For example, businesses will be able to raise up to $1 million through crowdfunding, she said, and this won’t limit their ability to raise money through other legal means. Also, Shmerling said, non-accredited equity investors will have to make their investments through online portals such as InCrowd Capital.

One concern about the practice is whether fraudulent businesses will take money from unsuspecting investors. But that doesn’t seem to be happening on a large scale in the United States with the legal forms of crowdfunding, Shmerling said, or in Europe, where equity crowdfunding is already legal.

Equity crowdfunding will open up demand for legal services, for investment advisers, for trusted accountants and for public relations people, Thorsby said. The latter will help businesses devise the pitches they will put on crowdfunding portals.

Crowdfunding is an exciting development, Thorsby said, because it will enable individuals to make investments in some of their favorite local businesses.

“If Anthony Lamas wants to open a Seviche at the end of my street, I would invest in that,” she said of chef Anthony Lamas and his Seviche A Latin Restaurant.

Source: Business First – Kevin Eigelbach

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