How to save U.S. crowdfunding before it’s dead on arrival

VB | Sherwood Neiss & Jason Best, CCA | February 8, 2014

We have a pulse 300x244 - How to save U.S. crowdfunding before it’s dead on arrivalEquity crowdfunding is about to come to unaccredited investors the United States, but some of the Securities and Exchange Commission’s proposed rules are hugely impractical.

If we don’t push the agency to implement some fixes, crowdfunding may be dead on arrival.

It’s historic when Congress passes legislation with nearly unanimous bipartisan support. Such was the case with crowdfunding in 2012: It passed the House with 96 percent approval and the Senate as part of the JOBS Act with 73 percent approval — not too bad in an era of “broken Washington.” It has been almost two years since President Obama signed the bill into law. In October 2013, the SEC released 585-pages of proposed rules for debt and equity crowdfunding.

Related:  The Promise and Perils of Equity Crowdfunding in the U.S.

While there are a lot of good rules, there are several proposed rules that we believe could make crowdfunding more difficult to use than other forms of financing. Here are four fixes that we believe will protect investors while increasing the utilization and effectiveness of crowdfunding by both Main Street businesses and high growth startups.

  1. Decrease lawsuits by making investors acknowledge the risk and allow crowdfunding sites to curate deals

  2. Add a “test the waters” safe harbor provision so companies can measure interest in their campaigns

  3. Reduce the cost to crowdfund by modifying accounting requirements and the thresholds for CPA reviews & audits

  4. Scale the disclosures to the size of the offering

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