Crowdfunding Forbes

The Trouble With Crowdfunding

The SEC has not yet released crowdfunding rules for public comment, but many folks aren’t waiting for that. At last count there were nearly 200 public comment letters and staff meetings about the subject on record with the Securities and Exchange Commission. That’s the highest of any provision of JOBS Act.

Meanwhile, the LinkedIn group “CrowdSourcing and CrowdFunding” has over 19, 000 members and is brimming with minute-by-minute activity, eclipsing the roughly 1, 400 members of the “IPO” group. It is impressive that a concept barely in the investor lexicon two years ago has captured the imagination and attention of so many.

Unfortunately, crowdfunding perception does not align with crowdfunding reality. Crowdfunding will not be able to deliver the grassroots fundraising ease for which so many seem to be hoping. After reviewing the enthusiastic postings of entrepreneurs and discussing the concepts in detail with financial and venture industry insiders, many observers believe there is a fundamental disconnect between the promise of crowdfunding, and the system that the SEC will put in place exercising its authority under the JOBS Act. Put another way, the risks, burdens and limitations of crowdfunding render it almost completely useless. And since crowdfunding targets individual investors, maybe that’s a good thing.

Social Media Meets Corporate Finance

The promise of social media has made it possible for unknown people and ideas to become viral sensations overnight without spending money on traditional media or promotion. We’ve all seen the Facebook posting of some puppy or kitten video that has managed to garner over 1 million “Likes.” We have become a society of direct engagement through social media, including Facebook, Twitter, Instagram, LinkedIn, Spotify and Pinterest. In early April, the staff of the SEC’s Division of Corporation Finance endorsed social media as a bona fide corporate disclosure tool under certain conditions. But until the JOBS Act, social media could not be used as an effective capital-raising tool without violating securities laws.

Crowdfunding Gains Political Traction

Crowdfunding began with the concept of small enterprises engaging in online capital-raising through social media and raising funds from people they did not previously know (and were not likely to meet). The notion that small individual investors could have the same access to early-stage investment as large venture capital funds, combined with the enhanced ability of start-up companies to raise money beyond their “friends and family” group was a compelling reason for Congress to add crowdfunding to the JOBS Act. Congress even cleverly fashioned Title III of the JOBS Act as the “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012.”

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He adds that, like an earlier generation of cypherpunks, he puts his faith in the mathematical promise of cryptography to trump the government’s power to stop him. “With cryptography, the state, or any protection firm, is largely obsolete…all activity that can be reduced to information transfer will be completely out of the government’s, or anyone’s, hands, other than the parties involved,” he says.

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Online Solar Marketplace Raises $1M In Equity Crowdfunding  — Forbes
Let's just say solar power social entrepreneur David Levine owes a big “thank you” to the Jumpstart Our Business Startups Act (JOBS). Passed in 2012 , it allows startups, including social enterprises, to tap a new source of financing–equity crowdfunding.

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