“Crowdfunding” is a means of raising capital for early-stage companies by obtaining small amounts of equity from numerous investors. Websites like Kickstarter have made it relatively easy for start-up companies to present their proposal and request funds from anyone willing to invest in their vision. However, nothing comes without a price and many companies who try to raise capital this way can run up against SEC rules that restrict public financing of this sort.
Earlier this year, President Obama signed the Jumpstart Our Business Startup Act (the “JOBS Act”) which was intended to ease the SEC regulatory burdens on small businesses. An important part of the Act relates directly to crowdfunding. Specifically, the Act allows a business to raise as much as $1 million over the course of a year from an unlimited number of investors. While there are still numerous restrictions on the businesses raising funds, the Act is expected to make such types of capital raising easier for small businesses.
Crowdfunding through the JOBS Act is a work in process. The Act calls for the SEC to propose specific rules and regulations by the end of the year. Still, the Act is substantial legislation with potentially large ramifications for start-ups. There will be much more to report over the coming months so stay tuned.