Crowd funding has been gettin alot of news latelly, and entrepreneur Jason Best is spearheading a movement to gain approval of legislation pending in Congress on Crowdfunding.
You are probable wondering, what is Crowdfunding? Crowdfunding (CF) is a new concept. Basically it would allow start up entrepreneurs to solicit funds from individuals without having to adhere to existing Securities and Exchange (SEC) regulations. Presently, new start ups must register with the SEC and follow a complex set or regulations that include an Initial Public Offering (IPO) of shares and disclosure of their financial status through periodic filings with the SEC.
Crowdfunding is intended to simplify and eliminate some of these requirements. It would make it easier for entrepreneurs to solicit funds directly from individuals. Advocates argue that Crowdfunding would produce 1.5 million jobs in 5 years.
The Crowdfunding Investing model set forth by advocates of CFI is a completely unique. It uses cutting edge technology to raise money and manage the project. An entrepreneur would begin by setting up a platform. That platform would be registered with the Securities and Exchange Commission (SEC).
From this step forward the model relies on social media technology to achieve results. The platform is then registered on Facebook, Linkedin and Twitter. Using these tools, the entrepreneur would make his/her pitch-the why, what and how much is needed. He/she must state his/her name, address, SS and DOB.
The project is now open to discussion via question and answer. This is the key to gaining trust and support for the project. Members can share information with others and bring others into the group. This now becomes the “Crowd.”
After this discussion, the entrepreneur can make his/her pitch for funds. Members of the Crowd join in with contributions they can afford. They must sign a statement that acknowledges the risk involved and the possibility of not recovering the money invested. The entrepreneur must reach his/her stated financial goal or the project does not go forward. If successful, the new community shares information and experience to help the entrepreneur succeed. Finally, the project is submitted to the SEC and State regulators.
The entire Crowdfunding concept rests on gaining trust through the use of Social Media.
Legislation in favor of Crowdfunding passed the House of Representatives by a vote of 390 to 23. Now similar bills are being debated in the Senate. The key issue is how to balance the freedom of entrepreneurs to solicit money with protections against fraud by regulatory agencies.
Here are several issues being debated. Proponents of Crowdfunding want unlimited, face-to face solicitation of funds. The Senate bill would require a licensed broker dealer to act as an intermediary. Start up entrepreneurs would be required to set up a website online. A 30-day escrow account must be set up.
Concerning funding S 1970 sets these requirements. Amounts of $1 million would require audited financials. Amounts under $500K would not be required to file. Individuals would be limited to $500 or 1-2% of individual income. There would be a $2000 cap on total amount invested in CF exempt business.
Proponents of CFs want to eliminate required state filings. They say it would hamper the expansion of businesses across state lines since filings would be required for each state. The Senate bill does not address this issue.
The issue of federal regulation has come under debate. Some groups are calling this legislation “ill conceived.” They said: “ We are writing on behalf of the Consumers Federation of America and Americans for Financial Reform (AFR) to express strong opposition to this ill conceived legislation.” In support of the bill are such groups as the National Association of Self Employed, National Black Chamber of Commerce,
Minority Business Roundtable, Latino Coalition, Small Business Entrepreneurship Council and National Small Business Association.
The Senate bill includes required filings with the Securities and Exchange Commission (SEC) with provisions for educational programs for investors. The SEC could also issue background checks on individuals when needed.
At this reading both sides are looking for compromises that would insure final passage of the bill. The key sticking points are the licensing and public solicitation of funds. Proponents still want to exempt intermediaries from federal and state broker dealer licensing requirements. As well, they also want exemptions from state filings and to eliminate the intermediary for local or state offerings. They also want just one page for SEC filing.
Looking at all of the intricacies involved, there seems to be a determination to pass some kind of legislation for CF, albeit in amended form.