Crowdfunding for startups closer to reality

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BY CATHERINE CLIFFORD Equity crowdfunding for unaccredited investors took one giant step forward today.

The Securities and Exchange Commission announced rules that will make it legal for entrepreneurs and startups to raise money by selling pieces of their company to everyday, mom-and-pop investors.

The proposed rules were released this morning and the Commission voted to adopt them. The rules will now be available for public comment for 90 days before a final set is drafted and adopted.

The crowdfunding community has been anxiously awaiting the release of the rules, which were due December 31, 2012 — 270 days after the Jumpstart Our Business Startups (JOBS) Act was signed into law on April 5 last year. The rules were delayed by leadership changes at the SEC and struggles by regulators to determine how to best protect unaccredited investors.

The crowdfunding community was pleased to finally see movement from the SEC. “Proposing the rules now demonstrates a commitment to making the law operational. It is a very tough challenge, and these are workable rules that can form the basis of a functioning market,” says Rory Eakin, co-founder and chief operating officer of crowdfunding platform CircleUp, in a statement. CircleUp has been intimately involved in the rulemaking process for equity crowdfunding, having testified before Congress about the needs of the community.

To be sure, pressure on the SEC has been mounting. Earlier this week, a bipartisan group of eight senators wrote a letter to the SEC Commissioner Mary Jo White pressing her for the rules. “It has now been over 530 days since the JOBS Act became law, and we have not seen a proposal from the SEC on crowdfunding. We are concerned that so much time has passed without action,” the letter said. “In particular, we have heard from entrepreneurs who have created crowdfunding platforms and those who want to raise capital via this new mechanism, both of whom have been hurt by the delay.”

Related: What Entrepreneurs Need to Know About the Historic Change in General Solicitation Law That Goes Into Effect September 23

While the proposed rules are better than no rules at all, some in the community fret that the requirements proposed today are overly burdensome and will blunt the potential benefit of the law change. “This is an exciting development and we welcome it, however, raising capital under the proposed new Title III rules restricts the amount of capital that companies can raise, and imposes certain burdens on the issuers,” said Andrew Farquharson, co-founder of investment portal VentureHealth, in a statement.

Farquharson says that as written, the laws may have limited reach. “Over the months and years ahead, however, today’s action by the SEC, in conjunction with its recent lift on public solicitation, will be seen as the beginning of a tectonic shift in how young companies raise capital.”

Related: What the U.S. Can Learn From the Netherlands About Equity Crowdfunding

Here is a rundown of the key highlights of the proposed regulations. These rules still have to be made final and could be altered depending on public comments.

Read more: http://www.entrepreneur.com/article/229585#ixzz2icABX2TK

 

 

 

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