An equity-based crowdfunding bill may be passed as early as next month. U.S. Rep. Patrick McHenry of North Carolina says the long-delayed legislation is finally ready. According to Boston Business Journal on June 6, 2014, he has been working to address proposed rules added by the U.S. Securities and Exchange Commission (SEC) to the JOBS Act of 2012.
Equity-based crowdfunding will allow the general public to take part in the funding of startups for the first time. It differs from rewards-based crowdfunding, the type that Kickstarter is known for, because it gives investors a piece of the company in exchange for their money. If Oculus had been afforded equity-based crowdfunding rather than the Kickstarter route, investors could have turned a $1000 investment into $250,000 based upon the $2 billion price Facebook paid for the company recently
A craft brewery in Madison, WI, is the first to use equity-based crowdfunding in that state. Local brewer MobCraft, worked with CraftFund LLC to raise funds. According to The Cap Times on June 6, 2014, this is all thanks to an exemption that went into effect on June 1. The exemption allows Wisconsin-based businesses to raise $1 million without an audit or up to $2 million audited from state residents.
The SEC is concerned that opening up equity-based crowdfunding to "Main Street" investors might get them fleeced by unscrupulous "Wall Street" promoters. In addition, unsophisticated investors could be prone to flood the agency with complaints in the case of losing their money. As well, companies with less than $100,000 in annual revenues would be allowed to self-certify their financials.
What do you think about the equity-based crowdfunding? Will opening up startups to any investor be a boon to fundraising or give it a black eye? Please drop in your comments below.