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  • JOBS Act: Crowdfunding Moves Forward

    Photo credit: Newscom

    Newscom

    The Jumpstart Our Business Startups (JOBS) Act, passed in April 2012 with huge bipartisan majorities, was designed to substantially reduce the regulatory burden on entrepreneurs seeking to raise capital to start and grow their businesses. But now some in Washington are trying to reverse its momentum.

    Title III of the JOBS Act would allow businesses to raise up to $1 million annually in small amounts from ordinary people through websites (or web “funding portals,” as the law calls them) without having to incur the high costs of going public.

    Congress required the Securities and Exchange Commission (SEC) to issue the final regulations allowing investment crowdfunding by December 31, 2012. Yesterday, about a year late, the SEC issued 585 pages of proposed rules. The provision that the rules are implementing, Title III of the JOBS Act, is nine pages long.

    Complying with the proposed rules may well negate any cost savings or burden-lightening that the JOBS Act provides. But opponents of the JOBS Act—including the AARP, the Consumer Federation of America, and state regulators—think that Americans lack the judgment and knowledge to make small investments on their own and need to be prevented by Washington from making these types of investments.

    Donative crowdfunding is widely used now to help charities, filmmakers, and artists raise money using the Internet. A version of crowdfunding is also commonly used in Regulation D sales to accredited investors—generally institutions and individuals with a residence exclusive net worth of $1 million or more or incomes of at least $200,000 single ($300,000 joint). But until the SEC crowdfunding regulations are finalized, it remains illegal for entrepreneurs to use crowdfunding to raise investment capital from ordinary Americans.

    There is little doubt that the proposed rule overregulates crowdfunding issuers and crowdfunding websites. Opponents of the JOBS Act are pressuring the SEC to effectively gut the JOBS Act by imposing burdensome rules to implement a bill that was supposed to reduce the regulatory burden on entrepreneurs.

    Allowing start-ups and other entrepreneurs to generate financing will help our economy to grow. Hundreds of pages of regulations will not.

    Posted in Capitol Hill, Economics [slideshow_deploy]

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