Crowd Funding – A Critique for Entrepreneurs and Investors

Crowd funding enables entrepreneurs to raise money in relatively small amounts from large numbers of interested investors. In the sum, substantial amounts of money (as much as a million dollars) can be raised for each startup company. Recently, entrepreneurs in many countries have been soliciting investment through "crowd funding" websites designed specifically for fundraising purposes. But, in the US, only wealthy accredited investors* have been allowed by the Securities and Exchange Commission (SEC) to invest in entrepreneurs and their startup companies (without extensive disclosure of the business plan and risks inherent to such new ventures).

Those US residents who do not meet accredited standards have been precluded from investing in startup companies. The assumption made by the regulators is that accredited investors have the business experience required to choose winners and can afford to lose the money if they are wrong. Consequently, US regulators have discouraged the selling of equity (shares) through crowd funding websites, so online companies, such as Kickstarter.com, offer the opportunity to donate funds to interesting US startup ventures in exchange for the right to become early product users or simply listed on the new ventures’ websites.

But now Congress is considering legalizing crowd funding for equity stakes in private companies by all interested citizens, with limits on individual investments and the total monies raised per company. This is a rather controversial change in the SEC regulations. I will describe the pros and cons.

Bill Payne

Full Story: http://billpayne.com/2011/11/25/crowd-funding-%E2%80%93-a-critique-for-entrepreneurs-and-investors.html

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If This Bill Passes, The Angel Investment Community Is Dead And Companies Like Kickstarter Take Over http://matr.net/article-47373.html