The idea of crowd funding is all over the internet. But in reality, it is a lot of hype. The Jobs Act that passed in 2012 had a lot of bold initiative intending to make it easier for entrepreneurs to raise capital by making private investments available to the masses, rather than the sophisticated wealthy investors.
Well intentioned advocates, missed the point. Not be able to attract the “average joe” to an investment wasn’t the thing making it hard to raise capital, it was the invisible wall created by FINRA, through their unbridled power provided the SEC, that prohibited access to the wealthy and sophisticated investors. The JOBS Act and the Crowd Funding lobbyists missed the point.
Fortunately, the SEC might actually get it.
So although entrepreneurs still CANNOT sell equity in their company through online portals, television ads, direct mail, and social media (they can take donations and sell over valued stuff), the SEC is making movement toward eliminating the two biggest REAL inhibitors to raising capital and enabling entrepreneurs to bypass the wealth managers and financial managers that have been the gate keepers to the sophisticated and accredited investors.
1. General Solicitation
2. Prior Relationship
With the removal of these two restrictions, entreprneurs will be able to raise capital through REG D and REG A offerings to accredited investors and find those investors through any means of outreach they can manage and afford. The burden of validating the investment doesn’t reside on the posting service, or the company, but on the investor that completes the investor questionnaire and certifies they are accredited or sophisticated enough to know they are making a risky investment.
This was the topic of the podcast http://tobtr.com/s/4387055.
And the host, Compassionate Capitalist, Karen Rands, also covers what companies can do to prepare for raising capital under this new programs when it is available later this year.