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SEC Considering Crowdsourced Funding

| Wednesday April 13th, 2011 | 0 Comments
Let’s say you want to invest in the latest and greatest sustainable start-up.  You can only afford to invest $100.  There are also hundreds of other individuals in your same situation, believing in the start ups mission and vision, yet with limited funds.  Are you legally allowed to invest?  Are you legally allowed to risk your own money?

Without jumping through a legal loopholes, the short answer is no.

However, there may be good news in the horizon.  The Securities and Exchange Commission is considering a change in the way investment is regulated.  This would make “crowdsourced funding” more accessible to us all.  You could invest with as little as $100.

The Securities Act of 1933 made it extremely difficult for the average person to invest in any company, be it a start-up or established company.  You have to be an “accredited” investor.  In terms of individual accreditation, this means you have to be, “a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.”

$200,000 to $300,000 may not sound that far fetched; (it’s still pretty steep).  But if these numbers were adjusted for inflation, that would mean you would need to make at least $3.5 to 5 million per year.  The rational for this accreditation law was to protect the lower and middle income folks from fraud, deception, or unnecessary risk.

In reality, it slowed the market for crowdsourced funding from developing. A ton of people with a few hundred bucks each could yield the same amount of funding as a handful of accredited investors.  The internet has reignited that spirit of crowdsourced funding with initiatives like Kickstarter.  The SEC is now considering changing its rules to match this resurgence.

The Sustainable Economies Law Center drafted the petition, File No. 4-605,  for the SEC to consider crowdsourced funding, with a minimum of $100 and a maximum of $100,000 to invest.  This would make investing more accessible to every day folks.  The SEC is also accepting comments from the public.  Some comments suggests a higher floor, a minimum of $250, and higher ceiling, a maximum of $250,000.

What do you think?  Should the SEC allow for crowdsourced funding?  Or shall investment, risk, and profit only be restricted to “accredited” investors?  If you feel passionate about this topic (preferably allowing crowdsourced funding) let the SEC know.

Nothing is set in stone.  The SEC may very well pass on this.  But we can have on influence on creating a new paradigm shift for crowdsourced funding.


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