SEC kicks the crowdfunding can down the road

One of the most frustrating things for small businesses trying to raise money, has always been the SEC rules against general solicitation and advertising ("Regulation D" under the Securities Act). Want to raise money? Sure. You just can't tell anybody you're doing it. Larger, well-funded companies doing an IPO are prominent enough so that those deep-pocketed investors they seek will know what's coming down the road, but smaller firms that want to raise say, a million dollars or less, have been out of luck and limited to the mostly mythical "friends and family" round of funding.

The JOBS Act, signed into law by President Obama and possibly one of the most important and groundbreaking pieces of legislation of our time, changes all that. It brings in the ability for small businesses to enter into an equity-based crowdfunding round for raising up to a million dollars, without burdensome requirements; and lifts the restriction on general solicitation and advertising so that a small business can actually let people know that they have something valuable to offer and have an equity investment opportunity available. This one piece of the JOBS Act is a game-changer in and of itself, and will be the missing piece of the puzzle that will trigger an incredible wave of innovation and entrepreneurship, starting as early as next year. Of course, the SEC is dragging its feet, and Wall Street doesn't want to open the doors to the party up to outsiders.

Yesterday, the SEC was to consider the rules that would allow advertising of securities—which is now mandated by the JOBS Act, but the agency delayed the hearing. Interesting to note though, that the SEC was originally supposed to implement the rules by July 4. Rep. McHenry, who co-authored the crowdfunding provision, said the SEC is "kicking the can down the road." The SEC's unexplained delaying tactics causes serious concern about their commitment to carrying out the law, and implementing not only the rule on advertising, but crowdfunding in general, which the SEC was given until the end of the year to implement.

An article in Wired notes very succinctly that the crowdfunding rule and the lifting of the general solicitation ban will change the game for the biggest venture capitalists. Startups looking for money, without having the ability to advertise their offer, have to approach VCs directly, and so will gravitate towards the largest and most prominent—which tends to consolidate the VC marketplace. And that's never a good trend. Both crowdfunding, and the lifting of the advertising ban, democratizes, at least to some degree, how small businesses get funded—and creates a lot more opportunities where there were none before.

The intended end result of the JOBS Act is that smaller companies that don't have access to capital, will have a new tool to use in the form of crowdfunding. To get there, some of the biggest players will have to share some of the toys on the playground—and they don't like that. And the SEC and powers that be, under the guise of "protecting the little guy," is actually hurting the little guy by putting roadblocks.

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