Thursday, May 17, 2012

Crowdfund act

The JOBS Act
Some of you may have heard about the JOBS (Jumpstart Our Business Startups)  Act that President Obama signed in April.  The JOBS Act has received bipartisan support across the board on its way to Obama’s desk, as it is expected to provide entrepreneurs with quicker access to capital to grow their businesses, and create jobs. It certainly does bring significant change to the investment process, and could bring a new level of transparency — if not public participation — to funding small businesses. For the country at large, the passage of this bill is all about job creation, and on that level, is being celebrated.

One portion of the legislation is the CROWDFUND ACT which deals with crowdfunding investment (aka equity-based crowdfunding) for businesses.  It is located in Title III of this legislation, allows business startups to seek up to $1 Million per year from small investors via crowdfunding online portals.  It makes its easier for startups to raise small amounts of money from large pools of investors. The technique has become more mainstream with the advent of sites like Kiva, Kickstarter and IndieGogo. 

Investors will be able to invest from $2,000 or up to ten percent of their net worth in crowdfunding offers made under the JOBS Act.  Up until now, SEC regulations (Securities Act-1933 and Securities Exchange Act-1934) had largely prevented this.  Legalizing crowdfunding in startups by non-accredited investors means that now even your mom can invest in your startup!  To learn more about Crowdfunding, heres a link to a free downloadable book written by Scott Steinberg "The Crowdfunding Bible,"

Various criticisms of the JOBS Act include:  “Gutting regulations designed to safeguard investors”; “legalizing boiler room operations”; relieving “businesses that are preparing to go public from some of the most important auditing regulations that Congress passed after the Enron debacle”; and “a terrible package of bills that would undo essential investor protections, reduce market transparency and distort the efficient allocation of capital”.

The Barefoot Accountant said, "I confess that I am at a total loss in understanding how exempting companies from audited financial statements for up to five years is good for investment?  Would you be more likely to invest in startup companies, no less, without assurance that their numbers were not works of fiction?  Hello?"

For more critical scrutiny of the JOBS Act, please see:  JOBS Act: Jumpstart Our Business Startups Act. Legalizing Fraud in the Stock Market.

The following link to the National Crowdfunding Association gives fairly detailed information on the legislation at this link,  Decide for loosing legislation designed to safeguard investors a prudent way to assist entreperneurs in gaining access to capital?

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