October 30th, 2015, the Securities and Exchange Commission approved rules that would allow implementation of the 2012 law, known as the JOBS Act, that approved securities crowdfunding. Up until that date, investors had to be accredited, which meant that they had to have liquid assets that amounted to over $100,000 dollars. The new rules would allow less affluent investors to place up to five percent of their yearly income. Those with a little higher income could invest up to ten percent. A single individual could not invest more than $100,000 in all crowdfunding offerings in a 12-month period. Companies will be allowed to raise a maximum of one million without registering with the SEC.
SEC Chair Mary Jo White is quoted as saying that staff would immediately begin to keep an eye on this new type of investment opportunity. They will be watching to see what companies gravitate toward this type of funding, and how the sponsoring companies will handle matching investors and businesses.
While the crowdfunding community can now let go that collective breath they’ve been holding while waiting for these rules to finally be approved, the traditional financial community has some misgivings. First of all, these funds might be used to finance start-up companies. With the best will in the world, new companies can fail – and many do fail within their first five years of operation. Some critiques of the new investment market believe that it is an opportunity for fraud.
Law Professor Mercer Bullard from the University of Mississippi pointed out that these rules will not protect investor from the fraud that can arise from your garden variety Internet scam.
On the other hand, Commissioner Michael Piwowar voted against the measure because he felt the rules were too strict, and would discourage businesses from participating.
Availability of the service might be slow coming to various states in the U.S., so investors and small companies might still need to exercise patience.
One way to avoid frauds and scams is to do your investing through an established equity crowdfunding company. Best Crowdfunding Websites features Microventures, an equity crowdfunding company that was started in 2009 with offices in San Francisco, California and Austin, Texas. Microventures exercises due diligence when selecting startups, and then helps creates an opportunity for them to connect with angel investors. However, with that said investing in new businesses is always a risk. Microventures posts a warning on their home page that investors should not give any more money than they can comfortably afford to lose. They advise that investors should have a “high-risk tolerance, low liquidity concerns, and long-term commitments.”
Best Crowdfunding Websites also lists Earlyshares, GrowVC, and OurCrowd in their equity crowdfunding page.
If you are not quite ready to engage in equity crowdfunding but are still interested in helping realize dreams, you can easily find ventures to your liking in either the rewards-based or flexible crowdfunding sections. Many of the items from Kickstarter are beginning business ventures, or a boost for businesses that can’t quite get past a need for more cash in order to expand. These projects are not funded unless the project’s financial goal is met.
Or there is Indiegogo, which has flexible funding. This means that whatever money is sent to the crowdfund recipient, he or she can keep and immediately apply to the project. This crowdfunding platform is often used for performance events or tours where the money needs to be available upfront to pay for an auditorium or travel expenses.
If you are primarily seeking a way to give charitably, GoFundMe has a variety of worthy causes from which you can choose, ranging from students who need help with books to families that need help and even small business ventures.
Crowdfunding has become a viable option for raising money or for supporting those in need of assistance – whether the business or idea owner needs a little help with getting started or whether there is a person who simply needs a rescue. It is also a way to assemble those wild and crazy ideas – such as a new card game, an indie movie concept, or a kitchen gadget that takes care of one of those chronic housekeeping problems.
The progress and changes in crowdfunding over the last year have been amazing – and there are still two months to go in 2015. Who can say what new events, inventions, personal needs, businesses or charitable events will be funding in 2016? Perhaps, along with the SEC, everyone should keep an eye on the new equity fundraising regulations and how they will work. One thing is for sure, whatever happens, it will be interesting.