Crowded Funding: Ahead of SEC, Small Business Investing Gets Busy
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Sometime early next year, the Securities and Exchange Commission is expected to propose rules that would pave the way for “equity crowdfunding,” harnessing the groupthink of social media as a tool for capital investment.
Small public companies (those with revenues of less than $5 million) could be able to raise up to $1 million using this approach to sell stock or promote revenue-based financing. Even ahead of those regulations, however—foisted upon the SEC by the JOBS Act—some companies are trying to get ahead of the crowdfunding race, through a careful parsing of Regulation D exemptions and state securities laws and adapting the “reward” based model already in use.
Among the Websites already running is Bolstr.com. Co-founder Charlie Tribbett says the service, which launched last month, aims to serve the neglected market for small business capital. This market, typified by the sort of no-interest loans hashed out over a dinner table, is estimated at about $50 billion a year, he says, with tremendous growth potential.
The catch? The forthcoming rules for crowdfunding platforms will only allow them to solicit donation-based capital from investors. So Bolstr acts only as a middleman—it transfers no money directly from investors to a business. Instead, it serves as the platform for companies to launch their own fundraising efforts. The process, however, is a bit more complicated than that may sound. “We ended up doing a state-by-state blue sky regulatory analysis and incorporated all the current securities laws into a technology platform,” Tribbett says. “The software will tell [companies] exactly what they need to do to stay in compliance with those regulatory laws of the state the investor resides in.”
The system, he says, uses the Regulation D exemption that allows small-business owners to conduct a private offering with both accredited and non-accredited investors. Other efforts have traditionally worked exclusively with accredited investors by registering as a broker-dealer or partnering with one. But it isn’t economically feasible to be a broker-dealer and help businesses raise sums of $25,000 or less, Tribbett says.
For the full article please visit complianceweek.com
Category: small bidness