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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?"
It's overreach
There should be an upper limit, perhaps around 10% of revenues.
Table-ized A.I.
So the solution is to just use croudsourcing outside of the US? If you want to start a croudsourced business, move to Canada or elsewhere in the world?
You can tell how powerful someone is by the magnitude of the crime they can commit and be able to get away with.
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.
Table-ized A.I.
This doesn't effect Kickstarter. The SEC only cares about crowd funded securities. I don't know of any kickstarter campaigns that gave stock as a reward.
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'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.
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.
When information is power, privacy is freedom.
The "S" in SEC stands for Securities. It is their job to regulate that kind of thing.
As you say, Kickstarter is different. Not only are you not getting any equity in the company, you aren't getting any financial stake in the project or anything. It is an investment for creative return, not financial, and thus not something that would be covered.
You need to pay income tax on Kickstarter funds, of course, but that's all. They aren't an investment as far as the SEC is concerned.
The US toy safety regulations are a commonly cited example. Following the scandal involving lead paint being used on toys imported from China, the US passed strict safety regulations for toys in the Consumer Product Safety Improvement Act. Well-intentioned, but they also cost a fair bit to follow - every new model of every toy needs to be sent to an independant inspector to run everything from mechanical tests to chemical analysis of the plastic. This is small change to a toy manufacturing giant, but a crippling expense to a small business. There's an exception to some of the regulations for those manufacturers who register as a 'small batch manufacturer,' but it's still more paoerwork overhead.
There's also some speculation about very small scale - there's no exception for nonprofits. If you were to knit some toys to sell at a charity event, that's now a felony - you can't see toys that havn't been subjected to the required safety testing. Up to a five year jail term. In practice regulatory generally know that this is one of the cases where actually enforcing the law would be silly, but such 'informal exemptions' are not good legal practice.
And what will we be getting in return for their wise and valuable oversight?
You will get to know how much money is being brought in, and how much is being spent. If that's worth it, I don't know, but that's the answer to your question.
"First they came for the slanderers and i said nothing."
If you actually bother to read the Federal Register text, you can see in the second paragraph of the introduction that the JOBS Act, and this subsequent regulatory structure, only applies to crowdfunding where the reward is a security. It specifically explains that this is different from the current model of crowdfunding in the U.S., where the donors receive some "token of value" related to the project, not a share of future financial returns. The SEC isn't trying to regulate the current system, but is trying (as directed by that law) to allow crowdfunding where the donor award is a security; the current regulatory structure, based on the Securities Act, largely makes this sort of model impossible due to the various requirements of public offerings.
So, there's nothing to get up in arms about. This is just a move by the SEC to allow something that isn't currently permissible under U.S. law, not an attempt to "tax Kickstarter" or "regulate Indiegogo" or whatever other nonsense people claim.
The Freelance Wizard
This is NOT about Kickstarter and other crowdfunding project sources. This is about INVESTMENT CROWDFUNDING, which is very different and yes is regulated.
Kickstarter etc typs Crowdfunding: You give money and get a product in return, or whatever was offered at your level of funding you gave.
Investment Crowdfunding: offering an actual return on investment in exchange for funding, such as shares in the company, a portion of the profits, etc. which are things that do fall under the normal purview of the SEC.
Way to not do your homework submitter. Nothing to see here folks, move along.
The first line of the "Background" section.
FFS. does anyone read the article anymore?
Where do you see that in the article?
Paragraph 3, sentence 1: "The legislation requires that the selling of crowdfund securities take place on registered websites" (emphasis mine).
not about crowdfunding as we know it AT ALL.
it's about different kind of crowd funding where you're participating in shares.
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.
Sorry, nope. Prizes for a raffle should be obtained before tickets are sold, so that everyone knows what they're buying. I may not be guaranteed to win anything, but I know somebody will, and that the winning is determined by random chance. In crowdfunding, I may personally be taking a gamble, but if I "win", so does everybody else, and that winning is not regulated by chance, but by the ability of the project team to deliver.
These abilities vary from project to project, unlike the rules of statistics, which are universal. It is therefore vital that someone assesses the credentials of crowdfunding projects, rather than leaving uninformed members of the public confused and convinced by pseudo-scientific technobabble.
Got them moderator blues I blieve I walk out the do', With these mod-points I been gettin', I 'most never post no mo'
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.
I've fallen off your lawn, and I can't get up.
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.
Hail Eris, full of mischief...
E pluribus sanguinem