The startup community is anxiously awaiting SEC regulations that would allow crowdfunders to invest in a company instead of receiving a reward like a sticker, but some, including one state official, want to make sure the rules are clear and prevent fraud.
"If they're going to have this, the rules need to be laid out," Secretary of State William F. Galvin said.
The regulations, part of the JOBS act, originally were due by Jan. 1, but have been delayed by the Securities and Exchange Commission. Title III of the JOBS act, called the Crowdfund Act, will provide an exemption to the current requirement that companies offering stock or other investment opportunities register with the SEC, which can be resource and time intensive. The SEC has not yet written the specific rules to regulate the exemption, although it has said the rule-making process is a top priority.
In the public comments section on the SEC's website, Galvin has submitted several letters outlining potential concerns.
"We want to make sure the potential for misrepresentation is not there," Galvin said. "There has to be some protections there to make sure it wouldn't be abused."
Instead of individual companies registering with the SEC, the funding portal, likely to take the form of a website, would register. The portal would be required to take anti-fraud measures, among other responsibilities.
Once the rules are in place, the potential for new companies will be huge, according to Tanya Prive, founder of RockThePost, an online funding site for startups.
"It democratizes the process of funding for startups," she said. "The power of fundraising is going to be substantially increased."
Still, not everyone is convinced that crowdfunded investments are smart. "I think it's bad for everybody," said Daniel Isenberg, the executive director of the Babson Entrepreneurship Ecosystem Project. "This will lead people to unexpectedly lose more money than they think. It will be lots and lots of people losing small amounts of money."
"Equity crowd-funding can't work," he said.
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