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Major News - SEC Approves Crowdfunding Stock

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Major News - SEC Approves Crowdfunding Stock

Postby Charles » Tue Dec 03, 2013 12:48 pm

I've been hearing about this for a while. Last night in class at my school we started discussing crowdfunding and how it's changing the nature of the animation business.

One of my students brought this to my attention so I did some research to see where everything was at and indeed, crowdfunding is coming to the corporate equities markets!

The Securities and Exchange Commission has approved the sale of ownership stakes in companies by soliciting investors over the Internet under a proposal they've advanced.

In other words, in addition to crowdfund the launch of a specific project or product, you'll be able to do the same with the sale of your company's stock!

This has huge implications for the future of not just business in entertainment, but across the entire breadth and scope of business in general.

From banking to Wall Street, everything will change as a result of this new way of doing things. Taking straight to the people without the traditional gatekeepers.

Take a look at this video. It's from a company called Equitynet which specializes in crowdfunding through the sale of stock. It went online just today and it already has 4 views! :D Many more to come I'm sure.



Crowdfunding corporate equities allows companies to raise capital into the millions of dollars with the payoff for investors as the company's value grows.

Also check out this article from Bloomberg. It was published just a few weeks ago and will help to explain just how significant a development this is...

...............


Crowdfunding for Internet Stock Sales Approved by SEC
By Dave Michaels
Oct 23, 2013

Startups and small businesses could sell ownership stakes in their companies by soliciting investors over the Internet under a proposal advanced by the Securities and Exchange Commission.

The plan would set rules for equity crowdfunding, which lawmakers said would spur growth by easing financing when they mandated it in the 2012 Jumpstart Our Business Startups Act. The rules, which the SEC voted 5-0 to release for public comment yesterday, may boost the nascent crowdfunding movement and help the agency through its backlog of regulations required by the JOBS Act and Dodd-Frank law.

Businesses and startups too small or risky to attract funding from banks or venture capitalists are expected to use equity crowdfunding. Regulators say they tried to address concerns that such fundraising will create a channel for fraud by allowing upstart companies to issue illiquid shares to retail investors.

“The proposal before us today appears to offer great promise for providing capital to small businesses so they can survive and hopefully thrive, but it may also provide great risks to investors,” Democratic SEC Commissioner Kara M. Stein said before the vote in Washington. “If we don’t get it right, I fear that the promise of crowdfunding will be lost.”

Advertising Allowed

The SEC’s proposal, open for public comment for 90 days, becomes the second regulation from the JOBS Act advanced under Chairman Mary Jo White. In July the agency approved a rule lifting the ban on advertising for investors outside of a public offering, which eased the ability to market directly to investors considered sophisticated and wealthy enough to understand the risks of investing and withstand a loss.

Crowdfunding has drawn wide interest because it will be open to any investor regardless of their income or net worth. Under the proposal, crowdfunding must be done online through an entity that provides investors with forums to ask questions and communicate about a deal.

“All investors, not just the so-called accredited investors, will have the opportunity to invest in entrepreneurs and their ideas at an earlier stage than ever before,” Republican SEC Commissioner Michael Piwowar said.

Businesses using crowdfunding could raise no more than $5,000 a year from someone whose income or net worth is less than $100,000. Investors with income or net worth greater than $100,000 could contribute as much as 10 percent of their annual income or net worth, to a maximum of $100,000 in one year.

No Verification

The proposal doesn’t require businesses or funding portals engaged in crowdfunding to verify compliance with those restrictions. Instead, a crowdfunding portal must ask investors to disclose their income or net worth as a means of determining compliance.

“It does make it easier for portals to operate with a large number of investors, which is within the spirit of the law,” said Rory Eakin, chief operating officer of CircleUp Network Inc.

The proposal creates a new regulatory regime for platforms such as CircleUp if they decide to engage in equity crowdfunding. The SEC estimates that 50 portals will initially participate in the market once the rules are adopted. Portals aren’t allowed to recommend deals or give investment advice.

Other portal operators that have shown interest in equity crowdfunding include Indiegogo Inc., EquityNet LLC, and RocketHub Inc. Kickstarter Inc., the most popular crowdfunding platform to date, has said it doesn’t intend to participate in equity crowdfunding.

Limits Imposed

A company using equity crowdfunding is limited to raising a maximum of $1 million per year. While companies raising smaller amounts would have to share financial statements and income-tax returns with investors, a business looking to raise more than $500,000 would have to provide audited financial statements. That requirement may deter some companies from participating in equity crowdfunding, Eakin said in a phone interview.

“It’s a very expensive process for early stage companies to spend $20,000 or $30,000 to have an audit,” Eakin said. “Venture firms historically don’t require those in Silicon Valley.”

Companies may intentionally limit their crowdfunding pitches to less than $500,000 to avoid having to hire an auditor, said Judd Hollas, chief executive of Fayetteville, Arkansas-based EquityNet.

“A formal audit is relatively rare and I’m a little bit surprised to see that is a requirement,” Hollas said.

Original article here.
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