The SEC Is About To Make Crowdfunding More Expensive

PapayaSF writes "Proposed new rules require that funding portals register with the Securities and Exchange Commission and the Financial Intermediary Regulatory Authority. In addition, investors must have access to a business plan, use of proceeds, a valuation of the company, and financials, so Certified Public Accountants may be needed. The SEC estimates that for amounts under $100,000, the fees will be 12.9% to 39% of the money raised, though it may drop to under 8% for higher amounts. Is this needed regulation, or bureaucratic overreach?"

Comments

Overreach

[redmid17]

It's overreach

Re:Overreach

[Will.Woodhull]

Also known as "needed regulation" for a problem that does not exist.

Precisely.

No mutual funds, retirement funds, or anything similar should have anything to do with crowdfunding. The SEC has no place here. Crowdfunding is similar to buying raffle tickets at a Church bazaar and the SEC has no business messing with those, either.

The SEC has more than enough to do with figuring out how to manage their direct mandate and prevent Big Finance from screwing us all over yet again with some new and clever shiny like the sub prime mortgage instruments, etc. They still need to clean their own house. And quit looking around for something to divert attention from they way that agency has managed to so fuck things up for 20 or more years.

Re:sounds like!

[Tablizer]

Or maybe big business trying to squash competitors.

While one often imagines left-leaning socialists wanting more regulations on everything, many times such legislation is merely big companies lobbying to stifle smaller companies, or even big competitors in slightly different industry categories.

In Utah, some big companies lobbied to regulate the cosmetic industry in a way that put a lot of mom-and-pop beauty salons out of business. Thus, people would go to big-co franchises instead. (That's why Utahians are so ugly :-) .... just kiddin'

Businesses only hate regulations that hurt themselves, but love regulations that stifle competition.

Existing patent laws appear to be a form of this: they favor big patent portfolios and big lawyers, because smaller companies and individuals don't have the lobbying money behind them to make the patent rules more small-company-friendly.

Perhaps not such a big deal

[beernutmark]

Having not read the actual legislation, the following quote from the article seems quite important: "The legislation requires that the selling of crowdfund securities take place on registered websites."

Notice the phase "selling of crowdfund securities." I think that most crowd funding doesn't involve the sale of securites and in fact most are just clever ways of pre-selling merchandise not yet made without having to give away any equity at all.

Although I could be talking complete nonsense.

I think this isn't talking about Kickstarter

[Dachannien]

I'm not completely sure, but I think the SEC is talking about situations where a company avoids the traditional IPO process and instead "crowdfunds" the sale of securities in their company (either debt or equity). Kickstarter is generally different, because the return on "investment" is in the form of a set non-monetary reward that is more similar to a purchase than an investment.

What is needed, though, is some clarity in the rulemaking process to ensure that Kickstarter and other similar sites can feel comfortable that they are not at risk of being caught up in this net.

Re:Thanks Government

[Jah-Wren Ryel]

If a company can put all of that together, they probably don't need crowdfunding in the first place. That's the ENTIRE POINT of having kickstarter in the first place!

This has nothing to do with Kickstarter. This is about selling SHARES in these companies, not about prepaying for potential products. I'm no expert, but best as I can tell this rules will have zero effect on crowd-funding as sites like kickstarter and indiegogo have been doing it.

Door slamming shut

[fyngyrz]

That may be so, but what this amounts to is closing a door we just managed to open for small operations. Here we go again, only ops with access to big business resources will typically be able to meet these proposed criteria. If you had doubt that big business interests drive our legislation, this should help resolve those doubts. Small operations can pose a huge threat because they are, at times, considerably quicker off the mark than your average corporation with its bean counters, lawyers, middle management, reviews, and HR making sure you only get the most mediocre employees possible.

This is mommy government at its typical get-in-the-way pursuits. The problem is, aside from complaining in fora like this one, there isn't much we can do about it unless some interested party's got deeper pockets than the corporations. Not too likely, seems to me.

Re:Door slamming shut

[Bite The Pillow]

The article is not clear, but this is traditional investing via crowdsourcing. Selling securities or equity, like a normal IPO. This makes the same rules apply everywhere, and closes a loophole advantageous to people who could go the traditional route but decide not to.
Kickstarter, where you pre-order merchandise, does not seem to be affected.
Do you think the SEC should regulate investing any differently because it happens on the web? I'm assuming the answer is "oh, I misunderstood."

Re:Thanks Government

[Nimey]

You're bringing facts into a thread dedicated to foaming about a flamebait[1] summary and how the government is inherently evil.

[1] I almost wrote "clickbait", but clearly hardly anyone's clicked it.