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http://onforb.es/PUssBJ ENTREPRENEURS 11/06/2012 @ 11:57AM 37,517 views Inside The JOBS Act: Equity Crowdfunding Comment Now In the spring of 2012, President Obama passed an act that will drastically alter the landscape of crowdfunding platforms. Until April 5, 2012, a small pool of existing crowdfunding sites were only permitted to operate on a reward or donation basis, essentially offering a product, discount, or enticement in exchange for monetary funding. With the launch of the JOBS Act, short for Jumpstart Our Business Startups , the ability for the general public to receive company equity in exchange for funding is now a possibility. As of today, the Securities Act of 1933 states that entities can not offer or sell securities to the public unless (a) the offering is registered with the SEC, or (b) there is an available exemption from registration. Unfortunately, the crowdfunding exemption introduced under the tittle III of the JOBS Act under Section 4(a)(6) of the Securities Act won’t be available until the SEC issues its regulations. The issue is entrepreneurs find it very difficult to access financing. Not only because their business plans are rejected 98% of the time by Venture Capitals when they can manage to get an introduction, but also because U.S. banks according to the Small Business Administration , held $607 billion in outstanding business loans of $1 million or less during 2011, which surprisingly enough, represents $100 billion less than in 2008.With the current state of the recession and the rising numbers of unemployment, crowdfunding could be a great asset to our country’s economy. These portals could serve as a great vehicle for investing in small businesses, which are accountable for creating 65% of the net new jobs over the past 17 years. As the CoFounder of Onevest , the leading equity crowdfunding platform for entrepreneurs and small businesses, I have seen just how effective the power of the crowd is. Crowdfunding is essentially a tool that gives entrepreneurs the opportunity to attract a pool of people via social media or shared interests in order to contribute to a funding target that has been previously established by the Tanya Prive Contributor I cover funding entrepreneurial venture from a crowdfunding angle. Opinions expressed by Forbes Contributors are their own.

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  • 5/23/2015 InsideTheJOBSAct:EquityCrowdfundingForbes

    http://www.forbes.com/sites/tanyaprive/2012/11/06/insidethejobsactequitycrowdfunding2/print/ 1/5

    http://onforb.es/PUssBJ

    ENTREPRENEURS 11/06/2012@11:57AM 37,517views

    InsideTheJOBSAct:EquityCrowdfunding

    CommentNow

    Inthespringof2012,PresidentObamapassedanactthatwilldrasticallyalterthelandscapeofcrowdfundingplatforms.UntilApril5,2012,asmallpoolofexistingcrowdfundingsiteswereonlypermittedtooperateonarewardordonationbasis,essentiallyofferingaproduct,discount,orenticementinexchangeformonetaryfunding.WiththelaunchoftheJOBSAct,shortforJumpstartOurBusinessStartups,theabilityforthegeneralpublictoreceivecompanyequityinexchangeforfundingisnowapossibility.

    Asoftoday,theSecuritiesActof1933statesthatentitiescannotofferorsellsecuritiestothepublicunless(a)theofferingisregisteredwiththeSEC,or(b)thereisanavailableexemptionfromregistration.Unfortunately,thecrowdfundingexemptionintroducedunderthetittleIIIoftheJOBSActunderSection4(a)(6)oftheSecuritiesActwontbeavailableuntiltheSECissuesitsregulations.

    Theissueisentrepreneursfinditverydifficulttoaccessfinancing.Notonlybecausetheirbusinessplansarerejected98%ofthetimebyVentureCapitalswhentheycanmanagetogetanintroduction,butalsobecauseU.S.banksaccordingtotheSmallBusinessAdministration,held$607billioninoutstandingbusinessloansof$1millionorlessduring2011,whichsurprisinglyenough,represents$100billionlessthanin2008.Withthecurrentstateoftherecessionandtherisingnumbersofunemployment,crowdfundingcouldbeagreatassettoourcountryseconomy.Theseportalscouldserveasagreatvehicleforinvestinginsmallbusinesses,whichareaccountableforcreating65%ofthenetnewjobsoverthepast17years.AstheCoFounderofOnevest,theleadingequitycrowdfundingplatformforentrepreneursandsmallbusinesses,Ihaveseenjusthoweffectivethepowerofthecrowdis.

    Crowdfundingisessentiallyatoolthatgivesentrepreneurstheopportunitytoattractapoolofpeopleviasocialmediaorsharedinterestsinordertocontributetoafundingtargetthathasbeenpreviouslyestablishedbythe

    TanyaPriveContributor

    Icoverfundingentrepreneurialventurefromacrowdfundingangle.OpinionsexpressedbyForbesContributorsaretheirown.

  • 5/23/2015 InsideTheJOBSAct:EquityCrowdfundingForbes

    http://www.forbes.com/sites/tanyaprive/2012/11/06/insidethejobsactequitycrowdfunding2/print/ 2/5

    entrepreneur.

    Datafrommassolutionresearchindicatesthattotalfundsviatherewardanddonationbasedcrowdfundingaregrowingatarateof524percent,whereplatformsraisedalmost$1.5billion,fundingoveronemillionprojectsin2011.

    Withtheadditionofequityasapotentialoptionwithinthecrowdfundingspace,thespotlightoncrowdfundinghasincreasedsubstantially.BusinesssavvyindividualscannowdreamofbeingoneofthefirstseedinvestorsinthenextFacebook,Airbnb,orDropbox.

    CrowdfundingCapitalAdvisors,acrowdfundindustryconsultancyfirmwillbereleasingareportinSeptember2013thatshowsthedebtandequitycrowdfundingspacetobeatleast$4.3billioninitsfirstyearofoperation.

    Asitalwayshappensinlife,therearepeoplewhoarecontrarytoitsimplementationastheythinkthatequitybasedcrowdfundingisveryriskyfortheaverageAmerican.Onthisnote,IwouldliketomentionthefactthatAmericanspurchase$45billiondollarsworthoflotteryticketseveryyear,withtheaveragehouseholdspending$150annually.Theoddsofwinningthelotteryareonein175millionaccordingtoAaronAbrams,amathematicianatEmoryUniversity.Thestockmarketoddsmightbeabitbrighter.However,totalassetsinvestedinstocks,bonds,mutualfunds,pensionfundsandinsurancefundsequal$30trillionaccordingtotheeconomistMichaelShuman.Forboth,lotteryandstockmarketshavenolimits,anyindividualcouldspendallthemoneytheywantandofcourselose

    it.

    Ontheotherhand,equitycrowdfundingcomeswithlimits,asthelawpermitsinvestmentsto5percentforindividualswithannualincomeoflessthan$100,000and10percentforthosewhomakeover$100,000.

    Sothebigquestionis,whydomostcrowdfundingsitesstillnotofferequityasanoptionyet?NowthattheJOBSActhaspassed,theUSSecuritiesExchangeCommission(SEC)hasbeeninstructedbyCongresstostepinandmonitorthenewchangesbeforetheActcantakeeffectforequitycrowdfunding(regulationsareexpectedonorbeforeJanuary2013).TheSECexiststoregulatefinancialFederallaws,andprotectthepublicfrompotentialfiscalmisuseregardingtheselaws.

  • 5/23/2015 InsideTheJOBSAct:EquityCrowdfundingForbes

    http://www.forbes.com/sites/tanyaprive/2012/11/06/insidethejobsactequitycrowdfunding2/print/ 3/5

    Inorderforthegeneralpublictofeelprotectedwhileinvestinginsmallbusinesses,theSECisworkingoncreatingastructuretosafeguardthesenewallowances.Whiledeliberatingthenumerousissuesinvolved,theSECcreatedanonlineforumtoreceivecommentsfromthepublicandaidintheirdecision.Untiltheyfinessethesechanges,crowdfundingplatformswillnotlegallybeabletoexistasequitybasedmodelswithoutoperatingunderthelicenseofabrokerdealer.

    EventhoughtheSEChasadeadlineestablishedonJanuary2013,therearefearsconcerningdelaysonthedeliveryoftheregulations.Agoodexampleofthetypeofdelaysfundingportalscouldbefacing,couldperfectlybetheDoddFrankAct,whichbecamethelawinJuly21,2010.ItwasscheduletobeenforcenolaterthanApril15,2011.However,afterayearofitsdeadlinetheenforcementisnowheretobeseen.Note,thattheSECstaffhavesaidpubliclyinanumberofforumsthatJOBSActrulesaretakingprecedenceoverDoddFrankrules.

    Forequitycrowdfundingtooperateproperly,fundingportalswillnotonlyneedregulationsinplace,butalsotheappointmentofaselfregulatoryorganizationorSRO.ThisSROismostlikelytobeFINRAasthelasttimeanSROwasintroducedinthemarketwasbackinthe1930s.Thisorganizationwillbeaccountableforoverseeingtheregulationoftheequitycrowdfundingindustry.Unfortunately,FINRAisprivatelyrunwheretheyreceiveannualduesfrombrokersandfirmsinthefinancialindustry.Thisfactcouldextendthedelaysevenfurther.

    AgoodstepforwardwasSECsproposalonAugust2012toendtheprohibitionagainstgeneralsolicitationandadvertisementonstartupsandinvestmentfundsunderRules506and144Aofferings.Withthisproposal,essentiallysellerswouldnotberestrictedwhenadvertisinganoffering.Withoutadoubt,socialmediaisakeyelementbehindthesuccessofcrowdfundingandifprojectcreatorsarenotabletotelltheworldaboutitviathesenetworkstheirfundraisingeffortswillmostlikelysuffertosomedegree.

    AninterestingfactstatedontheproposedSECRuleseliminatingbanongeneralsolicitationof506offerings,isthatin2011theestimatedamountofcapital(includingbothequityanddebt)raisedinRule506offeringsandRule144Aofferingswas$895billionand$168billioncomparedto$984billionraisedinregisteredofferings.In2010,theamountofcapital(includingbothequityanddebt)raisedinRule506offeringsandRule144Aofferingswas$902billionand$233billion,comparedto$1.07trillionraisedinregisteredofferings.

  • 5/23/2015 InsideTheJOBSAct:EquityCrowdfundingForbes

    http://www.forbes.com/sites/tanyaprive/2012/11/06/insidethejobsactequitycrowdfunding2/print/ 4/5

    Onanothernote,itissurprisinghowtheU.S.startupsfinditsodifficulttoraisemoneyduringtheinitialstageoftheirbusinesswhereonlyaccreditedinvestorsandotherinstitutionalinvestors,representing1%oftheUSpopulation,aretheonlycrowdallowedtoparticipate.IntheUKforexample,notonlyequitycrowdfundingislegal,butalsoundertheEnterpriseInvestmentSchemeanyoneinvestingbetween500and1minaqualifyingbusinesscouldbeeligibleforincometaxrelief,worth30percentoftheamountinvested.

    Toconclude,IhavetosaythatIamabigfanofinvestorprotection.However,Idofearthattoomanyrequirementsmaykilltheattractivenessofstartupinvesting.Asthetitle3(concerningcrowdfunding)oftheJOBSActstates,companiesseekingequitycrowdfundingshouldalreadythinkpriortotheirfundraisingeffortsthroughafundingportalaboutfilingwiththeSECandallpotentialinvestordocumentationthatwillinclude:

    Registrationandincorporationdocuments.

    Nameofdirectors,officerandstockholders.

    Descriptionofthebusiness.

    Prioryeartaxreturns.

    Financialstatements.

    Intendeduseofproceeds,targetamountanddeadline.

    Shareprice.

    Descriptionoftheownership.

    Outstandingsecuritiesofthecompany.

  • 5/23/2015 InsideTheJOBSAct:EquityCrowdfundingForbes

    http://www.forbes.com/sites/tanyaprive/2012/11/06/insidethejobsactequitycrowdfunding2/print/ 5/5

    Thisarticleisavailableonlineat:http://onforb.es/PUssBJ 2015Forbes.comLLCAllRightsReserved

    Inadditiontothis,intheeventthecompanyisraisingover$500,000itwillneedtheirfinancialstatementstobeaudited,whichcouldbeacostlyprocess.

    Fundingportalswillalsobeinvitedtopasscertainrequirements.SomeofthesemightberegistrationfeesorfortheportalmanagementteamtoholdwhateverexamFINRAorotherSROmayrequire.WordonthestreetisthattheremightbeeitheraspecialexamforportaloperatorsorforthemtopasstheexistingSeries7,63,64,66or79.HoldersoftheseexamsmayalsoneedtobesupervisedbyatleastoneholderofaSeries24andanotherwithSeries28.

    Whilethefutureofequitybasedcrowdfundingisstillundetermined,enthusiasticentrepreneursandinvestorswaitwithbaitedbreathfortheSECsfinalverdict.Eitherway,thefaceofsmallbusinessinvestingwillbedrasticallyalteredastheJOBSActbeginstotakeeffect.


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