Crowdfunding gets a new look from the SEC

Equity crowdfunding platforms have the potential to give investors slices of the startup pie

It was only a matter of time before the increasingly popular web-based method of raising funds for business ventures came under scrutiny from the U.S. Securities and Exchange Commission. Crowdfunding — using startups like Kickstarter and Indiegogo to source funds for nearly any type of project — is moving to equity investments under the auspices of the U.S. regulator. The U.K.'s Financial Conduct Agency is also going to examine its rules in regards to crowdfunding and its potential regulation.

The U.K. actually has some more advanced regulation for such technology already; reports describe the U.K.'s Seedrs as an equity crowdfunding platform. Indeed, Australia is also making plans to launch an equity crowdfunding platform in February 2014 to expand startup investing. What the spread of equity crowdfunding does is enable investors to contribute to the growth of a business and have equity stake in it, much like investors to projects on Kickstarter receive a physical or digital return from their investments should the total contributions reach a certain monetary goal. 

The appeal of crowdfunding is the freewheeling potential for widespread investment from folks who chip in via financial support, but the downside is the failure to reach the set funding goals, in which case, the venture gets nothing. Whether or not regulations from the SEC would adhere to this basic principle of crowdfunding is not yet known, as investor protection is obviously of great concern, especially through purely web-based operations.

The SEC's proposed regulations will take some time to flesh out, but if they do, a new era could be instated for the layman investor's bets in the startup industry.

 

Further reading:

Delay in crowdfunding rulemaking creates questions and opportunities

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Contributing Author

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Juliana Kenny

Juliana Kenny is a contributor to InsideCounsel.com, covering a range of topics including patent litigation, conflict mineral laws, executive compensation, and antitrust regulation. Juliana earned B.A.s...

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