Crowdfunding is expected to get a big boost on Friday when regulators take up letting average Americans invest in riskier small-business projects.
The move comes more than three years after it was called for by the Jumpstart Our Business Startups (JOBS) Act, which the Securities and Exchange Commission has taken its time in implementing.
The SEC two years ago began allowing public solicitation of private securities but restricted it to accredited investors who have at least $1 million in net assets — excluding the value of their home.
The commission is also expected to raise the cap on annual fundraising for a business from $1 million to $5 million.
Lifting the ban on smaller investors is expected to boost crowdfunding levels, especially in real estate ventures.
It remains to be seen what impact this will have on funding of startups that are now being backed by accredited angel and venture investors. They don’t often like large numbers of unseasoned shareholders having a say in the companies they invest in.
Some venture-and angel-backed companies have turned to crowdfunding vehicles like Kickstarter and Indiegogo to raise money but those haven’t involved giving investors any equity. Backers on those platforms usually get merchandise or credit in exchange for their funds.
Real estate has been the exception, with a number of companies offering to be intermediaries between investors and borrowers on deals.
The SEC is expected to vote on the final rules for Title III of the JOBS Act on Friday in a session that is scheduled to be streamed live. The new rules then need to be published in the federal register and could take effect about 60 days after the vote.
Source: Silicon Valley Business Journal, Cromwell Schubarth
Photo: Adoption of wider U.S. crowdfunding rules is expected on Friday, more than three years after President Barack Obama signed the Jumpstart Our Business Startups (JOBS) Act. (Reuters)