Friday, June 19, 2015

Crowdfunding Equity: "New rules mean you, too, can be a startup owner"

From cnet:

Beginning Friday, crowdfunding sites like Kickstarter and Indiegogo can give the public the chance to be startup owners, not just donors.
So you want to be the next Marc Andreessen? Friday could be the day when you start trying.
New federal rules will allow the American public to go online and buy shares in startups that up to now hadn't even been a legal option for all but the richest 3.5 percent of US households, including Silicon Valley venture capitalists like Andreessen.

But the changes made by the Securities and Exchange Commission that open investment opportunities to the masses could also give startup founders a reason to bypass Silicon Valley's all-powerful venture capital firms.
Since it went into effect in 2012, the JOBS Act, or the Jumpstart Our Business Startups Act, has eased up the Depression-era federal rules governing how companies raise funds and sell shares, providing a shot in the arm for crowdfunding.

But the law's effect has been blunted by rules that, among other things, have restricted the buying and selling of shares in private, non-publicly traded companies to accredited investors -- that is, individuals whose annual income is greater than $200,000 or a household whose net assets (excluding their homes) exceed $1 million.

Although Kickstarter and Indiegogo have been increasingly valuable avenues for tech entrepreneurs to raise cash, those crowdfunding platforms have only offered the digital masses the chance to be donors, not owners. Give $10 to a boutique yarn store in Pennsylvania you found on Kickstarter, expect a tote bag, not a share.

And while other crowdfunding sites like Wefunder have allowed tech entrepreneurs to sell pieces of their startups online, circumventing the traditional venture capital route, the SEC has effectively kept 96.5 percent of American households (that is, the non-accredited investor population) from being able to buy, sell, or even look at, the investment opportunities on their sites.

"Unless you're a rich person, you can't participate in the next Facebook or Apple or Tesla," says Ron Miller, CEO of StartEngine. "Friday opens that up."...MORE
HT: the Mercury-Times' SiliconBeat blog.
Also at SiliconBeat:
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