What Is the Impact of New SEC Rules on Crowdfunding Solicitation?
by: Brian Krassenstein
Although the latest news out of the SEC this week wasn't exactly what many of us in the Crowdfunding market hoped for, it is a big step in the right direction. Basically when President Obama signed the JOBS Act into law back in April of 2012, there were two key changes which had to be reviewed by the SEC before progress on the law could actually be made. This week be saw the first of the two phases outlined and scheduled for enactment by the Securities and Exchange commission. Section 201(a) of the JOBS act lifts the 80-year ban on “general solicitation” when startups, or investments in general, are to seek funding. In layman's terms this means that crowdfunding projects, hedge funds, and the likes, can not advertise their opportunities to the general public. Although this may seem like a small step towards widespread equity crowdfunding in the United States, it's actual a major first step. Here's why:
Everyone will Have An Equal Opportunity
Up until this change, Hedge fund managers, startups, and other investments could not publicly advertise the investments they were offering. This means that unless you were privy to the exclusive investment community of Investment Bankers, Hedge Fund managers, and Angel Investors with deep pockets, you would never have even heard of the opportunities which were presenting themselves. This will all change now that general solicitation is going to be legalized. Now even your 90 year old Grandma will likely be hearing about these investments via television commercials, newspaper ads, and pamphlets.
The CrowdFunding Markets Are About to Ignite
Although the second of the two phases, that which will allow equity crowdfunding investments for non accredited investors, has yet to go into effect, the very fact that equity crowdfunding projects may now advertise to the public (accredited investors can only invest for the time being), an entirely new advertising market will open up. This will lead to huge growth within the Crowdfunding arena, leading to marketing, advertising, and analyst jobs for the specific niche of equity crowdfunding.
Now we just have to wait for the other shoe to drop, which is phase two of the equity crowdfunding section of the JOBS act, which will soon follow. At that point, those making under $200,000 a year, or those with a net liquid worth under $1 million will be able to invest into the hundreds of startups launching every month, which currently are only opened to those with the big bucks. As this occurs, not only will the new rules lead to job creation within the Crowdfunding sector, but also bring about rapid change within startup communities worldwide. Banks better begin to worry!
What are you opinions?