Amid all the Mizzou news, seeing SEC and thinking “Southeastern Conference” is forgivable. But, in this case, it means Securities and Exchange Commission and they just foisted 700 pages of regulations on the people who seek to fund their start-up businesses by the “crowdfunding” method or getting small amounts from a number of people rather than finding one big investor:
…since the Securities Act of 1933, it has been illegal for entrepreneurs to use crowdfunding (or any general solicitation) to raise investment capital from ordinary Americans to start a business. The 2012 Jumpstart Our Business Startups (JOBS) Act was supposed to remove this hurdle.
Title III of the JOBS Act allowed business owners to raise up to $1 million per year, in small amounts from ordinary people, via either internet-based “funding portals” or broker-dealers. This tool would allow business owners to raise capital without having to incur the high costs—which can run into millions of dollars—of going public.
Given the complexity of the rules, along with the $1-million limit, it’s doubtful many entrepreneurs will find crowdfunding worth their effort.
Confused? You’re not alone. According to The Daily Signal, and really, anyone who thinks about it, the reality is that the government, or the SEC, thinks it knows better than regular Americans on the topic of investing cash. These aren’t rules that have gone through Congress. They are rules imposed by the SEC to “reduce the impact of a potential loss for investors.”
Sure they are. The details are ridiculous, but in a nutshell the amount of money one can invest is determined by an individual’s income. Make more than $100,000, you can invest up to $10,000 in crowdfunding situations. People with lower incomes can invest less than $2,000
What is just as egregious as not trusting the people to make their own decisions when it comes to investing, is the reality that people with great business ideas may not be able to realize them with this avenue for start-up and seed capital cut off. Raising money via small donations is a time honored way of getting a lot out of a little, and with this move, the SEC more or less eliminated it.
Yet again, a department in the Obama Administration did an end run around Congress. Sure, Americans can crowdfund, but here are the rules. And The Daily Signal is right, most are not going to bother.