October 30, 2014

New SEC Rule Doesn’t Enable True Crowdfunding

crowdfunding

The Federal Security Exchange Commission this week announced (PDF) changes in the rules for private sale of stock in startups and other companies.

The rules will now make it easier to market these private shares by promoting them in email blasts or over social media…or even through media advertisement. Previously shares could only be sold to angel investors, VC (Venture Capital) funds or other investors with whom the seller has an established relationship.

The new SEC rule change comes on the heels of last year’s Jumpstart our Business Startups (JOBS) Act. It’s aimed at, among other things, improving funding options for business, including better enabling crowdfunding.

But if small businesses hoped the new SEC rule change would enable true crowdfunding, as most people understand it, they’re mistaken, the New York Times reports.

What the New SEC Rule Change Doesn’t Do

The crowdfunding most people are familiar with involves sites like Kickstarter and Indiegogo. Crowdfunding campaigns raise money from site visitors usually in exchange for an incentive. This could include anything from a thank you on the project website to crowdfunders getting a copy of the product, once developed.

But the new SEC rule does not allow just anyone to buy a share of your company. Instead, investors must be accredited. That means with an income of $200,000 or more or with a net worth greater than $1 million, the New York Times reports.

Of course, the rule does make it easier to sell shares privately. That means without filing with the SEC or publicly disclosing financials.

And that is something that may interest smaller businesses. What do you think?

Crowdfunding Photo via Shutterstock

6 Comments ▼

Shawn Hessinger - Editor


Shawn Hessinger Shawn Hessinger is the Editor for Small Business Trends. He is a journalist and social media networker with more than a decade of experience in the traditional newspaper business before moving to the digital world. He was the former community manager of BizSugar and the former community editor at AllAnalytics, a site dedicated to professionals in the business intelligence and analytics community.

6 Reactions

  1. It seems like crowdfunding is now more encouraged. I could not blame them though. With more and more people wanting to spend less, a pool of money is the best resource for just about any type of business.

  2. I think what they are trying to prevent here is to get some money from unaccredited sources. It is still better to get some funds from real investors.

  3. Crowdfunding campaigns raise money from site visitors usually in exchange for an incentive and helps kick start new timers to grow their business or ideas into something tangible.

  4. I was always under the impression that the SEC marched to its own beat regardless of what the government regulates for the rest of the country. I suppose you learn something new everyday.

  5. Shawn,

    I think selling shares privately will open up more funding opportunities for small biz. I do hope that in the near future, crowdfunding platform (and SEC) can accomodate shares buying. I would be very interested in investing in those tech projects/startups.

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