But what if there was potential for a financial return on these crowdsourced investments? If startups could offer stock to their small-stake supporters, some (including Amy Cortese in this New York Times Op-Ed) predict that the practice of crowdfunding would explode, opening up far more resources to entrepreneurs, spurring innovation, and creating jobs.
That’s exactly what the Entrepreneur Access to Capital Act (HR 2930) aims to achieve. The bill, has the support of President Obama and was passed by an overwhelming majority in the House in November but has been hung up in the Senate ever since.
“Create a regulatory framework to let private businesses use crowdfunding … to raise up to $2 million annually from investors pledging no more than $10,000, or 10 percent of their annual income.“
“The SEC is considering updating its own rules to foster capital formation. Earlier this month, an SEC advisory panel urged the agency to relax outdated rules that trigger public financial reporting for companies, but it stopped short of backing crowdfunding, citing concerns about investor protection.”
In a TechCrunch interview at the Techonomy conference last November, AOL founder Steve Case pointed out the irony in current rules that limit investing to the accredited, noting that you don’t have to be accredited to go to Las Vegas and lose $10,000 at a table in an hour.
But “there are real concerns,” as Cortese noted in her Times Op-Ed:
“The S.E.C. must balance its dual mission of facilitating investment and protecting investors, and as we all know, snake-oil salesmen are alive and well on the Internet. Furthermore, Wall Street banks are likely to fight any efforts to encourage crowdfunding because it cuts them out of the equation. But the potential rewards outweigh the risks. With such sums, the hazard to any single investor is limited. And information is more freely available today than in the 1930s, when the regulations were written.”
Just how great is the potential of the policy to spur economic growth? A Capital Creation and Crowdfunding Conference in Los Angeles next month promises to explore “how the rising private markets will lead the nation toward an era of economic prosperity.”
And the industry publication The Daily Crowdsource is hoping to figure it out for us. They’re using the crowdfunding platform RocketHub to raise capital to conduct a crowdsourcing market research report.