Why is mainstream media ignoring Equity Crowdfunding?

How many of you have actually seen a blurb on your local or national new channel, or even a VNR on Equity Crowdfunding?  Is it because businesses cannot legally raise monies via equity crowdfunding until the SEC promulgates rules early next year?

Engage in casual conversation with people you meet and ask if they have heard the term.  My experience shows that some have, most haven’t and those that have do not know much about it.

The JOBS Act, signed into law April 5th, 2012 by President Obama has eight Titles (parts).  Title III – Crowdfunding allows businesses (Issuers) to raise small dollar amounts from many investors (the crowd) though registered websites, called funding portals, in return for securities.  While most people have heard of the JOBS Act, they remain unfamiliar with a component which is poised to allow American entrepreneurs and business owners create American jobs.  Wikipedia states: “The Jumpstart Our Business Startups Act or JOBS Act is a law intended to encourage funding of United States small businesses by easing various securities regulations.”

So why, during a Presidential election year focused on the US economy and job creation, isn’t equity Crowdfunding being promoted?  The Act passed with bipartisan support from the House and Senate.

I would like to hear comments from potential Investors and Issuers (businesses wanting to Crowdfund) to some of the questions posed below.  Keep in mind, since the SEC has not yet promulgated rules for equity Crowdfunding, background information on each category below is subject to change:

Investors

Will you invest in Crowdfund companies?
What criteria will you use to select an investment via a registered Funding Portal (sector specific investments, past performance of portal, your own research)?
What are your thoughts on resale restrictions and lack of liquidity?

Specifically, what would you like to learn more about regarding equity Crowdfunding?

There are restrictions on the amount of money non-accredited investors can invest and on the aggregate amount invested:

Non-accredited investors can invest the greater of $2,000 or 5 percent of their annual income or net worth if either their annual income or  net worth is less than $100,000; and 10 percent of their annual income or net worth (not to exceed a maximum aggregate amount sold of $100,000), if either their annual income or net worth is equal to or more than $100,000.

You will not be able to readily sell your shares for a period of one year unless they are bought by an accredited investor, the issuer or under certain circumstances (death or divorce) a family member.

There may not be an established trading market after the one year holding period and therefore limited liquidity.

Issuers

Can you recite the current rules and regulations required for an Issuer to offer securities?
What is your plan for choosing a registered Funding Portal?

How will you value you company’s securities offered to satisfy regulations and not discourage subsequent financings?

Specifically, what would you like to learn more about regarding equity Crowdfunding?

The rules can be onerous for the unfamiliar.  As an Issuer, you are required to file with the SEC and provide to investors and the relevant broker or funding portal pertinent information about your company and its owners; describe the financial condition of your business, the amount you want to raise, the deadline for raising the funds and the price and terms of the securities being offered; explain how the securities being offered are being valued; define the risks to purchasers of the securities; only provide notices which direct investors to the funding portal or broker (e.g., you may not advertise the terms of the offering).  In addition you must be familiar with corporate governance and the financial statements reporting requirements.

That’s why it is important to start the education process early and align yourself with industry experts who can guide you and help manage the reporting requirements of the Act. Consider the long term picture too. Crowdfund Investing portals that have thoughtfully considered how to educate and align you, the owner, with capable experts will pay off. Select ones that can introduce you to Merger and Acquisition (m&a) firms that specialize in helping Emerging Companies. You will need their help securing future financing or negotiating and executing the sale of your company. This will help keep your new shareholders satisfied.

Current rules in the Act require issuers to make available to potential investors the price to the public of the securities or the method for determining the price, provided that, prior to sale, each investor shall be provided in writing the final price and all required disclosures, with a reasonable opportunity to rescind the commitment to purchase the securities. Issuers must also show how the securities being offered are being valued, and provide examples of methods for how such securities may be valued by the issuer in the future, including during subsequent corporate actions.

Navocate provides Business Sales and Acquisition services for Emerging Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks. For more information please visit www.navocate.com.