Investors previously unable to join in the growing crowdfunding movement got good news last Wednesday when the Securities and Exchange Commission voted in favor of new regulations for the expanding platform. The SEC unanimously approved the new rules, which will allow a larger portion of the public access to crowdfunding investment opportunities.
Crowdfunding, an innovative way to finance and invest in small businesses, allows entrepreneurs and small business owners to seek funds from the public, or “crowd.” Individuals pool their funds, typically working with crowdfunding sites to invest in these companies. Investment can be either equity- or debt-based, with investors receiving either a share of the company or interest on their receivables.
In 2012, crowdfunding sites raised over $2 billion, and this number was expected to double in 2013. With numbers like these, the SEC could not ignore the potential for economic growth associated with this enterprise. Growing public interest has prompted the SEC to look closely at this new investment format and what it might look like moving forward.
The new regulations do away with a stipulation that potential investors must be accredited, meaning they would have to make at least $200,000 a year to invest in businesses seeking funding through crowdfunding platforms. SEC commissioner Michael Piwowar spoke of the new rules, stating that they would allow small businesses to “access capital from sources that were previously unavailable” and give “all investors, not just so-called accredited investors, the opportunity to invest in entrepreneurs and their ideas at an earlier stage than ever before.”
Although there were concerns in the industry that the new rules would hamper crowdfunding opportunities, the fears seem to be unfounded. The rules seek to strike a balance between protecting investors and not stifling the growing crowdfunding field. Small businesses and newly-able investors are glad to finally see the new rules, which have been delayed several times due to the newness of the format, questions about fraud protection, and leadership changes at the SEC.
The new rules will enter a 3-month comment phase, and many of the details remain undecided. Investors and business owners will now have the chance to voice their suggestions and concerns before the rules are finalized. The goal is to create a sound plan that will offer capital to new and growing businesses while protecting investor interests.
As they stand, the new crowdfunding rules suggest that the SEC is embracing the pioneering approach to finance, and we expect that it will continue to grow as the regulations are finalized.
To view the new regulations, visit the SEC website at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540017677 - .Ums9KxaHpSU