The Crowdfunding Act
President Barack Obama’s signing of the JOBS/Crowdfunding Act recently promises to be a huge alteration to securities regulations. It might rival the impact of Sarbanes-Oxley back in 2002.
Important Aspects of the “Crowdfunding” Act
The CROWDFUND (JOBS) Act is not going to provide a free ride for anyone as some had hoped. Staying to the letter of the law while increasing capital through crowdfunding is not an easy task. It will require more checkpoints and expenditure of money and time.
The real winners, based on this early evaluation of the CROWDFUNDING Act, promises to be accountants and lawyers, who will be necessary through implementation of the act and beyond. Any entities expecting to stuff their bank accounts by crowdfunding will see a great deal of expense before they realize any gains.
Some go, but others come.
The Crowdfunding Act removes the regulations that kept businesses from using non-accredited investors to provide funds publicly, but that doesn’t mean that there will be a reduction in regulations. Funding from the crowd or any source will require jumping through hoops the same as before.
Crowdfunding Requires Expense for Gain
The entrepreneurial spirit does not get a boost with crowdfunding. The requirements of disclosure will place a burden on them because of the CROWDFUND Act. There are no guarantees on any venture, but this act will make it more difficult to develop an idea for those who can’t invest at least five figures to start with.
The Crowdfunding Act requires any offering to reach a certain level of commitment before the investments are required from those signing up. It won’t be that difficult for some companies to lose because some offerings will prove unsuccessful.
Investors May Not Climb Onboard
Although it is assured that some businesses will attempt to follow the Act and get funds by crowdfunding, there is a better chance that many companies will not want to invest what they must to remain in compliance. Crowdfunding will certainly not be successful without the support of many who will need to hedge against the odds.
Will Technology Startups be Hurt the Most?
In the past, it has not been a tremendous feat for technology firms to get the backing necessary for startup. Under the new act, those management teams that put together technology startups might have a much more difficult time due to the preliminary funding they will need to provide.
Medium sized companies with historical success may be best able to make crowdfunding work if they have opportunities that require expansion capital.