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Essential CrowdFunding Points - CrowdFundingPlanning.com - CFP

posted Apr 3, 2013, 4:10 PM by Andrew Manzo   [ updated Apr 5, 2013, 4:27 PM by David Khorram ]
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.
The Entrepreneur Access to Capital Act (H.R. 2930):
  • 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.
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