BY Yuki Noguchi, Crowdfunding is popular among musicians, filmmakers and artists looking for a way to finance their next project. Now the Securities and Exchange Commission is considering rules that, for the first time, would allow small companies to solicit investments over the Internet and sell shares to the general public.
For some small firms, these new rules come as welcome news.Sh ne Emmett, CEO of Health Warrior, which makes a line of nutrition bars made of chia seeds, says his company is looking to raise money and would consider doing so under the SEC rules.
Currently, private companies are only allowed to solicit funding from accredited investors — essentially wealthy people with a net worth of $1 million, excluding their homes. But the new rules would allow companies to raise as much as $1 million a year from lower net-worth people by selling shares. Regulations are needed because last year’s Jumpstart Our Business Startups (JOBS) Act allows small investors to obtain equity stakes in startups and other small businesses.
“It’s a really interesting opportunity, I think, not only for companies that are getting bigger, like Health Warrior, but for companies that are smaller and aren’t fortunate enough to have ready access to capital from high net-worth individuals,” Emmett says.
He says it’s the smallest companies, like his, that take big risks and potentially return big rewards. But most startups fail. Emmett says he considers his business high risk.
And there’s the rub: How do you disclose that risk to the general public?