The crowdfunding conference here in San Francisco wrapped up yesterday covering hot topics and issues surrounding the evolving landscape of small business capital formation. Specifically the shifting SEC regulations from the antiquated 1933 Securities Act via the passing of the recent JOBS Act. The morning session consisted of updates and the current pulse of the crowdfunding industry along with investor relations etiquette for communicating with Backers.
We also heard from multiple panels consisting of industry participants like Sherwood Neiss from Crowdfund Capital Advisors, Ben Lee from CircleUp and Alon Hillel-Tuch co-founder of RocketHub.
The midday panels covered the real meat and potatoes by addressing the regulatory implications of Crowdfunding for Professionals. Although Title III of the JOBS Act discusses Crowdfunding the big change for small business as I discussed numerous times on this site is Title II in the lifting of General Solicitation and Advertising ban for Regulation D offerings.
By the time the afternoon rolled around we discussed the implications of raising additional investment through a series A, B and C if your original seed money was crowdfunded. The implications to how Venture Capital may view a later round in terms of voting rights from unaccredited or unsophisticated investors in the crowd.
The bottom line is crowdfunding portals looking to offer equity crowdfunding like Startup Addict’s platform continue to have an uphill battle with the proposed SEC regulation. The main issue for portals is the requirement to be registered and monitored by FINRA which means becoming a broker-dealer under securities law. The intent of the JOBS Act is to make capital formation for small business much easier and forcing portals to join Wall Street as a broker-dealer is counter intuitive I fully support standards, transparency and best practices to thwart fraud but I would rather the private market place dictate a crowdfunding portals success.
If you look at the economics behind a crowdfunding portal it is very difficult to make money with the current revenue model, adding additional costs to portals will place undue burden. This will inevitably be passed on to entrepreneurs and startups and cannibalize the “EASY” access to capital intent of the JOBS Act.