Crowdfunding legislation

Commentary: It's time for our own crowdfunding law

As you are probably well aware by now, Congress passed a federal crowdfunding law.

This was really exciting.

But the federal law is problematic for many, many reasons.

What are the problems with the federal crowdfunding law? To name just a few:

  1. Companies won’t be able to use crowdfunding as a fundraising tool until the SEC issues lengthy, complex regulations. We have no idea how long this will take. Already the SEC has delayed issuing regulations on a much simpler topic. The crowdfunding regulations may very well be delayed as well.
  2. The federal crowdfunding exemption forces companies to use registered broker-dealers or registered funding portals. Most private companies raising funds do so without the help of broker-dealers or other intermediaries. But for a company to crowdfund under the federal exemption, it will be forced to use an intermediary. This is unfortunate.
  3. By virtue of the particulars of the law, companies are going to have to expend significant resources in order to comply with it to raise funds (e.g., PPMs, audited financial statements, etc.). It is going to be very expensive. Call it “Sarbanes-Oxley for Startups.” The law’s costs and burdens are disproportionate to the capped amount of money companies are allowed to raise.

In short, the federal law is, in the opinion of many (and not just lawyers, but other business persons as well), not going to work very well. It is unfortunate that out of the JOBS Act the law appears headed toward making it more difficult for early-stage companies to raise money rather than the opposite — when it was clearly the intention of the Congress that the JOBS Act would make fundraising for early stage companies easier.

It is a common lament in Washington that there is not enough funding to go around for all of the companies here. We suffer some “flight”— meaning that smart folks take their pitches to Silicon Valley, where there is more money to fund companies. I agree that we need more money for companies here, and that is why I am writing to advocate that the state of Washington should adopt its own “mini-crowdfunding” law.

It is not uncommon for states to pass “mini” laws. For example, California has a “mini-Warn Act.”

Washington should enact its own mini-crowdfunding exemption, but it should not be modeled on the federal act. Instead, the Washington Securities Division or the Legislature should craft an exemption that will work for local businesses and investors.

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by bigconcepts

Big-Concepts is a rewards crowdfunding platform for creative people and small business. Using social media to reach out to people who believe in you and your concepts. Game developers, fashion designers, artist, new technology, inventions, film makers, musicians and business owners are a few of the categories who typically receive significant funding from effective crowdfunding campaigns.

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