SEC Issues Proposal on Equity-based Crowdfunding

Entrepreneurs may soon be able to reach a new pool of potential investors through crowdfunding websites. On October 23, 2013, the SEC issued proposed rules under the Jumpstart Our Business Startups Act (the “JOBS Act”) to permit the offering and sale of securities through crowdfunding. (http://www.sec.gov/rules/proposed/2013/33-9470.pdf). Crowdfunding, an evolving method of raising funds online, has helped generate financial support for a wide range of projects through sites like Kickstarter (www.kickstarter.com). But so far, the securities laws have limited crowdfunding to a donation-based model. The JOBS Act and the SEC’s new proposed rules are intended to expand use of crowdfunding to include the offering and sale of securities, allowing small businesses to raise capital from a wide range of potential investors and providing additional investment opportunities for investors. Some observers predict that this “democratization” of finance will spark a revolution in venture financing. (See “Crowdfunding’s Big-Bang Moment”, Harvard Business Review; Roar of ‘Crowd’ Proposed, Wall Street Journal, October 24, 2013.)

“There is a great deal of excitement in the marketplace about the crowdfunding exemption, and I’m pleased that we’re in a position to seek public comment on a proposal to permit crowdfunding”, said SEC Chair Mary Jo White. (See  SEC Press Release Regarding Proposed Crowdfunding Rules.) “We want this market to thrive in a safe manner for investors.”

The SEC is seeking public comment on the proposed rules for a 90-day period, following their publication in the Federal Register.

For more information about the issues discussed in this article, please contact Brian Bouggy at 317.669.0140 or bbouggy@dblaw.us.

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