CrowdFunding JOBS Act: Title III proposed rules meeting


By Robert J. Mullins  Sr. Staff writer, Oct. 23, 2013 — The U.S. Securities and Exchange Commission (SEC) is expected to release at a hearing today in Washington, D.C., a full set of proposed rules governing Title III of the federal JOBS Act that would allow non-accredited investors to provide debt or equity investments in companies through crowdfunding.

The development of Title III rules follows the enactment Sept. 23 of Title II rules governing equity investments by accredited investors, which are defined as individuals making at least $200,000 a year in each of the past two years, or individuals with a net worth of at least $1 million, excluding a home.

Title II is designed to broaden the universe of investors who can contribute to crowdfunding campaign through platforms such as Kickstarter and Indiegogo, where people can contribute to a startup for usually well under $1 million, but don’t gain equity in the firm to which they are contributing. Traditional venture capital funding usually involves equity investments of well into the millions of dollars.

Titles II and III are parts of the Jumpstart Our Business Startups Act (called the JOBS Act, for short), which was signed by President Barack Obama in 2010.
The formal introduction of the rules is to be followed by a 90-day comment period and the entire rulemaking process is expected to be completed by April 2014.
CrowdFundBeat asked a number of crowdfunding experts about the impact Title III is expected to have on crowdfunding in the U.S.:

Doug Ellenoff, a partner in the securities law firm of Ellenoff, Grossman and Schole in New York City
“This will be the first time the public will see the full proposed rules. For our clients, we will help them fashion a comment to submit to the SEC. Since countries like Australia and the UK already have laws in place around equity crowdfunding, the SEC should take comfort in the fact that those countries have implemented equity crowdfunding without incident and without fraud.”

Joy Schoffler, principal at Leverage PR, whose clients are active in the crowdfunding space and is very familiar with the JOBS Act
“As a whole the industry is very excited right now. “For a long time now no one was sure when or if it was even going to happen, seeing movement is incredibly exciting. This is what we have all been waiting for.”

Howard J. Leonhardt, founder and chairman of The California Stock Xchange and Leonhardt Ventures.
“I believe people are underestimating the impact of true democratized crowdfunding. Under 1 percent of U.S. startups secure VC financing. Now company founders will be able to reach out wider to their entire social network. To a wider range of friends, neighbors and business associates. It is my belief that this single financing innovation has true potential to herald in our greatest era of economic growth and innovation.”

Sydney Armani, CEO and publisher, CrowdFundBeat Silicon Valley
“We think crowdfunding overall is very great. People that I talk to and who I learn from are very optimistic about it. It’s here to stay and It will make the whole financial market better.”

Jouko Ahvenainen, founder and chairman, Grow VC Group
“The crowdfunding and new securities market is evolving rapidly around the world. The SECs role is important, in ensuring a sustainable development of a market that will surely change the way we access investment opportunities, but also collectively participate in creating a more transparent and efficient economy.”

David Drake, Managing Partner of LDJ Capital, New York City
“The proposed rules will undergo 90 days of public commenting, 30 days of SEC staff summary for the Commissioners, another vote on the rules, then two weeks to submit the rules to the Federal Register and 60 days later they will become law. Overall, before the end of summer 2014 we hope to have functional crowdfunding equity laws in the US.”

Paul Freeman,CFO Crowdit
“We believe that crowdfunding will help drive the next wave in innovation and economic expansion, and underpins its mission to support small business growth. Crowdit’s site goes beyond just funding great ideas, but focuses on supporting success through peer and expert advisory support, business networking and sharing of best practices and knowledge.”

Jilliene Helman, CEO, Realty Mogul Co.
“We’re looking forward to clarity from the sec and expect the beginning of that clarity will happen Wednesday.”

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