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Bloomberg: Anyone Can Back a Startup Now. But Good Luck Finding the Next Uber
http://www.ft.com/intl/cms/s/0/46464eb0-1ab3-11e6-a7bc-ee846770ec15.html
US crowdfunding launch faces fight over rules
May 15, 2016 6:43 pm
by Richard Waters in San Francisco, Barney Jopson in Washington and Nicole Bullock in New York
"We had a roughly 10-page legislative text and they’ve written over 500 pages of regulation. I think that’s outsized and cumbersome"
- Patrick McHenry
The long-delayed introduction of crowdfunding in the US takes effect on Monday, amid warnings that the new market will be choked by regulation and an attempt by Republican lawmakers to relax the rules.
A law change more than four years ago to open up investment in private companies beyond wealthy “accredited” investors was heralded as a breakthrough to allow anyone to back the next generation of tech start-ups. But a protracted review by the Securities and Exchange Commission delayed the new market, as regulators struggled with how to prevent fraud and money-laundering.
“The SEC has really created a credibility crisis for crowdfunding,” said Patrick McHenry, the Republican vice-chairman of the House financial services committee, in an interview with the Financial Times. “It’s as if regulators don’t have trust and confidence that this marketplace can work. It seems like they have no trust that we can successfully invest in each other.”
Financiers say complexity and uncertainty about the rules have discouraged many companies from trying to raise money at the outset, with some warning that the SEC’s regime will backfire on investors.
<>
US crowdfunding launch faces fight over rules
May 15, 2016 6:43 pm
by Richard Waters in San Francisco, Barney Jopson in Washington and Nicole Bullock in New York
"We had a roughly 10-page legislative text and they’ve written over 500 pages of regulation. I think that’s outsized and cumbersome"
- Patrick McHenry
The long-delayed introduction of crowdfunding in the US takes effect on Monday, amid warnings that the new market will be choked by regulation and an attempt by Republican lawmakers to relax the rules.
A law change more than four years ago to open up investment in private companies beyond wealthy “accredited” investors was heralded as a breakthrough to allow anyone to back the next generation of tech start-ups. But a protracted review by the Securities and Exchange Commission delayed the new market, as regulators struggled with how to prevent fraud and money-laundering.
“The SEC has really created a credibility crisis for crowdfunding,” said Patrick McHenry, the Republican vice-chairman of the House financial services committee, in an interview with the Financial Times. “It’s as if regulators don’t have trust and confidence that this marketplace can work. It seems like they have no trust that we can successfully invest in each other.”
Financiers say complexity and uncertainty about the rules have discouraged many companies from trying to raise money at the outset, with some warning that the SEC’s regime will backfire on investors.
<>
TIPS: http://www.crowdfundinsider.com/2016/03/83470-jobs-act-crowdfunding-begins-on-may-16-2016-dont-get-busted-for-solicitation/
http://www.crowdfundinsider.com/2016/04/84175-busted-for-crowdfunding-its-rehab-time-on-capitol-hill-this-week/
http://www.bloomberg.com/news/articles/2016-05-13/soon-you-won-t-have-to-be-rich-to-back-a-startup
Anyone Can Back a Startup Now. But Good Luck Finding the Next Uber
by Lizette Chapman
May 13, 2016 — 4:00 AM PDT
New crowdfunding rules taking effect Monday (May 16) will let anyone—not just the wealthy— invest in startups. But don't bet on the "99 percent" finding the next Uber overnight.
The change overrides a longstanding Securities and Exchange Commission requirement that investors backing private companies be "accredited," meaning they make at least $200,000 a year and have a net worth of $1 million or more (excluding their home).
Now startups raising money through online crowdfunding portals will be able to sell shares to people regardless of their wealth or income so long as the founders have submitted annual financial reports to the SEC. In exchange, companies can raise up to $1 million.
The rules, implemented as part of Title III of the JOBS Act, were four years in the making and the result of industry lobbying to make the process more democratic. The big question is how much the change will transform crowdfunding, which has typically rewarded backers with T-shirts, events tickets and early iterations of gadgets.
While some startups are keen to sell shares to small investors, others are hanging back because they find the rules too onerous and the fundraising limit too low. Meanwhile, Kickstarter, the biggest and best-known crowdfunding site, has no plans to join the party.
<>
Richard Swart, a founding board member of the Crowdfunding Professional Association, says the new fundraising rules could especially appeal to companies outside venture-capital rich California and New York. He says entrepreneurs in theater, food production and energy have expressed the most interest so far, along with minority-led businesses.
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"We're hoping crowdfunding can start to equalize the distribution of funding," says Swart, who also serves as chief strategy officer at NextGen Crowdfunding LLC, a year-old startup that provides information about funding portals, individual companies and crowdfunding regulations.
Still, he and others acknowledge that new funding option could have limited appeal. Jim Fulton, an attorney at Cooley LLP who specializes in corporate and securities law for emerging companies, says many companies, especially in tech, consider the $1 million limit too low and the costs to register and submit annual results too high. He says fewer than a dozen clients have asked about the option. Another potential turnoff: a requirement that companies communicate with investors as individuals rather than as a group.
<>
As of Thursday, five crowdfunding portals had been approved: Wefunder Portal LLC, SI Portal LLC. dba Seedinvest.com, CFS LLC. dba CrowdFundingSTAR.com, NextSeed US LLC. and StartEngine Capital LLC. Three dozen more are awaiting approval.
A spokesman for Kickstarter said the company has no intention of adding equity investing to its platform. But rival crowdfunding portal Indiegogo does.
<>
Anyone Can Back a Startup Now. But Good Luck Finding the Next Uber
by Lizette Chapman
May 13, 2016 — 4:00 AM PDT
New crowdfunding rules taking effect Monday (May 16) will let anyone—not just the wealthy— invest in startups. But don't bet on the "99 percent" finding the next Uber overnight.
The change overrides a longstanding Securities and Exchange Commission requirement that investors backing private companies be "accredited," meaning they make at least $200,000 a year and have a net worth of $1 million or more (excluding their home).
Now startups raising money through online crowdfunding portals will be able to sell shares to people regardless of their wealth or income so long as the founders have submitted annual financial reports to the SEC. In exchange, companies can raise up to $1 million.
The rules, implemented as part of Title III of the JOBS Act, were four years in the making and the result of industry lobbying to make the process more democratic. The big question is how much the change will transform crowdfunding, which has typically rewarded backers with T-shirts, events tickets and early iterations of gadgets.
While some startups are keen to sell shares to small investors, others are hanging back because they find the rules too onerous and the fundraising limit too low. Meanwhile, Kickstarter, the biggest and best-known crowdfunding site, has no plans to join the party.
<>
Richard Swart, a founding board member of the Crowdfunding Professional Association, says the new fundraising rules could especially appeal to companies outside venture-capital rich California and New York. He says entrepreneurs in theater, food production and energy have expressed the most interest so far, along with minority-led businesses.
<>
"We're hoping crowdfunding can start to equalize the distribution of funding," says Swart, who also serves as chief strategy officer at NextGen Crowdfunding LLC, a year-old startup that provides information about funding portals, individual companies and crowdfunding regulations.
Still, he and others acknowledge that new funding option could have limited appeal. Jim Fulton, an attorney at Cooley LLP who specializes in corporate and securities law for emerging companies, says many companies, especially in tech, consider the $1 million limit too low and the costs to register and submit annual results too high. He says fewer than a dozen clients have asked about the option. Another potential turnoff: a requirement that companies communicate with investors as individuals rather than as a group.
<>
As of Thursday, five crowdfunding portals had been approved: Wefunder Portal LLC, SI Portal LLC. dba Seedinvest.com, CFS LLC. dba CrowdFundingSTAR.com, NextSeed US LLC. and StartEngine Capital LLC. Three dozen more are awaiting approval.
A spokesman for Kickstarter said the company has no intention of adding equity investing to its platform. But rival crowdfunding portal Indiegogo does.
<>
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