On April 5, 2012 the JOBS Act was passed. On October 30, 2015 Title III: Equity Crowdfunding final rules were passed which marked all 7 Titles of the JOBS Act were approved. Recently, the ‘‘Fix Crowdfunding Act’’ was introduced to Congress to improve Regulation Crowdfunding. FINRA and SEC has taken an approach of letting the crowdfunding industry cultivate the business model and the regulators will oversee and implement regulations on an as needed basis. The integration of technology within the private capital markets is monumental since in the 21st century the internet is incorporated in every aspect of your daily life and business.
This blog is a part of a 3 blog series. Click here to read Part 1: The apples and oranges of Crowdfunding – Reward/ Donation Crowdfunding is not investing and Part 2: The inconvenient truth: Most Startups Fail – the Risk Vs Reward trade-off in the PIPR Market
Part 3: THE PRIVATE AND PUBLIC CAPITAL MARKET DISCLOSURE WORLD
Transparency is efficient
The JOBS Act of 2012 amended securities regulation which have been in place since 1934 is shifting the dynamics of the private capital markets. Private companies can advertise their securities offerings to a bigger and even global market of potential investors because of the removal of the ban on general solicitation of Private Placements (Title II), and because the development of equity crowdfunding market will allow unlimited unaccredited investors to invest in private companies through online funding portals (Title III). The newly amended capital raising regulations enhance transparency and the availability of information in the private markets. In some respects, the private markets and public markets will converge to resemble each other more closely as the pricing and valuation of private companies begin to take on greater efficiency.
This blog is a part of a 3 blog series. Click here to read Part 1: The apples and oranges of Crowdfunding – Reward/ Donation Crowdfunding is not investing.
Part 2: The Inconvenient Truth: Most Startups Fail
The Risk Vs Reward tradeoff in the PIPR Market
Startups can fail for many different reasons and most do! Within the Final Regulation Crowdfunding Rules, the SEC comments about the Survival Rates for Startups and Small Businesses
On May 16, 2016, Equity (Investment) Crowdfunding will be available in the United States meaning anyone can invest into a private company that is listed on a FINRA member funding portal. Investing is no joke and should be approached cautiously. There are no guarantees; Investors bear the risk of losing their entire investment.
If you are a loyal reader of my blogs, you know I keep harping on the importance of investors to thoroughly conduct due diligence and review all disclosures prior to making an investment. Issuers must not only release favorable information about their company. All information needs to be fair, detailed and balanced. It’s in the best interest of the Company (Issuer) and the Investor that all risks and conflicts are communicated. So consider this part of your general crowdfunding due diligence as I discuss about in my opinion) equity crowdfunding and the private market risks and rewards. Part 1 is below and Part 2 and Part 3 will be posted shortly.
Part 1: The apples and oranges of Crowdfunding
Reward/ Donation Crowdfunding is not investing
Kickstarter and Indiegogo highlighted the power of crowdfunding with successfully attracting millions of dollars for projects developed by some very talented and creative individuals. The Pebble Watch, the coolest cooler, and even the potato salad project exceeded their initial funding goals. But did they deliver their promised rewards to their backers? Reward Crowdfunding has sparked numerous projects into fully operational companies, while some projects have failed to deliver on their rewards.
On July 10, 2013, the Securities and Exchange Commission adopted bad actor disqualification provisions for Rule 506 of Regulation D under the Securities Act of 1933, to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The disqualification and related disclosure provisions appear as paragraphs (d) and (e) of Rule 506 of Regulation D.