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Apr 13

Will the SEC update the rules to accommodate crowd-funding?

Posted by annearf in secIn compliancecrowd-funding


Looks like the Securities and Exchange Commission is trying to enter the Internet age.

Specifically SEC Chairman Mary Shapiro recently signaled that she wants to evaluate  the rules for raising money through crowd-funding, making it a more viable source for investment in small business.

The term applies to efforts to get funding through social networks. Companies, usually small ones, broadcast their financing need, along with specifics about the business, on a relevant platform in the hopes of attracting many many small contributions from individuals. They may use Facebook or Twitter, or they may try one of the many crowd-funding platforms, like Kickstarter.

It's basically the way President Obama raised all that money during his election campaign, but for entrepreneurs looking to start or expand  business. 

At any rate, crowd-funding can be a proverbial win-win for both sides of the transaction. For small companies with few resources, it provides  new way to raise money. For small investors, it offers entree to new and interesting companies.

Now the SEC is looking to change the rules so that companies using crowd-funded are governed by share-issue and disclosure regulations that are less onerous and demanding than existing requirements. The upshot would be to make it easier for non-professional investors to take get involved in crowd-funding. 

The worry is that by relaxing the rules, the SEC will do away with requirements meant to protect small, non-professional investors. The rules are there for a reason. But the fact is the Internet has made it possible to create funding techniques not considered when the rules were written. Updating them will help businesses and investors, too.

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