The massive potential game changer for startups that is equity crowdfunding

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It’s being called a game changer, a BFD with the chance to give startups and small businesses what they need to grow.

Instead of cool tech, T-shirts or backing something because you believe in it, equity crowdfunding allows people to buy shares and invest in companies, and last Friday the Securities and Exchange Commission (SEC) made Reg. A+ legal in the United States.

Some basics:

  • Reg A+ removes the requirement that investors be accredited, or have more than $1 million in assets.
  • Investors can only buy up to 10 percent of their net income in stock.
  • Companies raising money under new rules can sell up to $50 million in securities in a 12-month period.
  • The accredited investor rule has been in effect since the Great Depression era of 1930s.
  • The JOBS Act that makes all this possible was passed and signed into law in 2012 but the SEC was in charge of implementation, a process that took some time.

So what does it all mean to journalism and media in the United States?

We don’t really know yet. It’s only been a week. Follow this space to see things develop, but here are a few interesting takes on the impact of equity crowdfunding that have been offered so far.

1. Ramona Ortega is a part of the Latino Startup Alliance and founder of Mi Dinero Mi Futuro. She believes Reg. A+ will be a big deal, especially for minority and women-owned businesses, she told TechCrunch.

2. If you have been a longtime reader of Through the Cracks then you remember Gimlet Media’s venture into equity crowdfunding. They raised $200,000 in two hours with equity crowdfunding. Well they raised the money on the equity crowdfunding platform Quire (formerly Alphaworks), who broke down the whole history of equity crowdfunding in a three-part series on Medium.

3. If the entire idea of equity crowdfunding grabs your interest, you may want to check out this FAQ from the SEC.

4. A lot of people are bullish about the future of equity crowdfunding but some people who spoke with the LA Times believe the amount of paperwork necessary to file may be a deterrent to some companies.

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Khari Johnson
Khari is founder and editor of Through the Cracks: Crowdfunding in Journalism. He also writes about bots and artificial intelligence for VentureBeat. He has built news startups in the U.S. and Europe for the last decade.

1 COMMENT

  1. Hi Kimberly. That’s a good question. The pigadarm under which Kickstarter and others operate is one of donations, sometimes in return for services or perks of some kind. Kickstarter is actually limited to creative “projects” only and they state that it is “not about investment or lending.” While there are target amounts and deadlines, best practices in raising funds for a project in this way seems to be to not shoot too high in your target amount because if you don’t reach your target, no money changes hands. With Indiegogo, the money changes hands regardless of amount, but the fee is higher if the target is not reached and people are encouraged to run multiple, smaller campaigns. The bill before the Senate does not specifically address the issue of over funding, however it does require “a description of the stated purpose and intended use of the proceeds sought,” and “a target offering amount, the deadline to reach the target offering amount, and regular updates regarding the progress …” This will probably be addressed in the rules that will be promulgated after the bill is signed into law, but bearing in mind that this will concern offerings for the sale of securities, in some specific amount, for a specific intended purpose, and with a finite deadline, once the target is met and all the securities offered have been sold, that will be the end of that particular offering; there will not be any more shares for sale and thus no over-funding. There may ultimately be a provision for the release of funds to the issuer once a certain percentage of the target amount is reached, as provided for in the House bill. In a case like that, presumably the offering would remain open after funds were released until the stated deadline has been reached or it was fully funded.

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