Crowdfunding Will Bring More Capital to Small Businesses, Panel Tells Congress

Sep
2012
13

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Washington, DC — September 13, 2012 – The Securities and Exchange Commission should move with “due speed and clarity,” a panel urged the House Joint Subcommittee Hearing on JOBS Act Implementation.  Naval Ravikant, CEO of AngelList, tesified that crowdfund investing will bring more capital to small business, adding ”Today’s small start-ups are tomorrow’s Fortune 500 employer.”

The committee originally scheduled the hearing to get a progress report from SEC chair Mary Schapiro, regarding the creation of rules that will implement the JOBS Act. The Jumpstart Our Business Startups Act requires the Securities and Exchange Commission to launch regulations to govern crowdfund investing. The Act will enable small businesses to raise up to $ 1 million per year from small investors through online, crowdfund portals.

Although Ms. Schaprio could not attend, members of academia, small businesses and the crowdfund communities urged that job creation visioned under the JOBS Act should move forward with due speed and clarity. “Critics have argued loose rules may invite fraud, Mr. Ravikand testified. “Rules that are too tight, however, may repel the good companies – the ones who drive all of the economic returns for investors.”

Mr. Ravikand suggested that regulators can discourage fraud by allow crowdfunding portals to “curate,” that is, decide what gets featured and what gets buired on the site and in communications.  “Non-equity crowdfunding sites such as Kickstarter, curate heavily to avoid becoming hotbeds of fraud.”

Jeff VanWinkle, an attorney and treasurer of the National Small Business Association, testified that crowdfunding applies to a broad swath of equity, including peer-to-peer lending. “Title III of the JOBS Act will effectively permit P2P lending to small firms under the rubric of crowdfunding,” he said. Mr. Winkle further recommended that crowdfund portals should not be required to register under the same requirements as general dealers. “It is important that the Commission make it clear that funding portal fees set, in whole or in part, as a percentage of the amount raised do not trigger dealer registration requirements.”

Just the day before, the NSBA reported the sobering news that 44 percent of small-business owners think the national economy is worse today than it was six months ago—up from 31 percent in December 2011.

Article by A. Brian Dengler, Member of Crowdfund Intermediary Regulatory Advocates and attorney with Vorys, Sater, Seymour and Pease. Mr. Dengler also is an adjunct instructor in emedia business at Kent State University and a former Vice President of AOL, Inc.