Given the challenges small businesses and entrepreneurs face in raising capital to help them grow and compete, the crowdfunding concept is a viable solution. Crowdfunding, especially in the context of community-based financing of local projects, has the potential when done correctly to be a very useful tool in opening up access to capital for business. Crowdfunding, simply put, is raising investment funding in small increments from a large number of people often through Internet marketing.
Current Securities and Exchange Commission (SEC) rules make this type of small dollar investment cost prohibitive due to registration and reporting requirements at both the state and federal level. Since 2010, ASBC has been one of the earliest supporters of crowdfunding as a vehicle for small business to gain access to capital. ASBC has worked on Capitol Hill to insure that the interests of locally-owned small businesses and entrepreneurs are properly served in the development of crowdfunding legislation.
On March 22, the Senate passed the Merkley amendment (CROWDFUND Act) which greatly improves investor protection over the House-passed version (Entrepreneur Access to Capital Act). Specifically, the Merkley amendment addressed these problems:
- No requirement for financial disclosure
- No requirement to use a registered intermediary (a fundraising portal)
- Little or no limit on the total funds raised or deal size
- No ban on anonymous stock promoters being hired to hype the deal
- No protection against schemes that single out the public investors for dilution while protecting insiders
ASBC applauds the Senate for supporting this amendment. The JOBS Act (H.R. 3606), as amended, passed both houses and was signed into law by President Obama on April 5.
ASBC submitted comments to the SEC for its crowdfunding rulemaking process. The comments reflect the need to minimize the regulatory burden for small (under $100,000) and local (within a single state or 200-mile radius) offerings. In addition, ASBC is exploring ways for the private sector to promote well-designed and well-managed online intermediaries (the “fundraising portal”) that will protect investors and help the best quality deals reach the investing public.