My colleague Wayne Crews’ Forbes column Monday explained “How Entrepreneurs Can Speak Out About the Cost of Regulation,” but noted sadly that “businesses that never form in the first place because of regulation never get a chance to talk.”
But there may be at least one exception. Next week in San Francisco, a conference will bring together entrepreneurs and investors to discuss, in part, businesses that can’t form because of the thicket of red tape.
Coastal Shows, producer of the annual Crowdfund Global Expo (CFGE), will host the CFGE Crowdfund Banking and Lending Summit at San Francisco’s Grand Hyatt on October 16 and 17. A bevy of prominent speakers, including yours truly, will talk about crowdfunding as a new frontier that could open up opportunities in investing and lending, if only some of the antiquated securities regulations could be trimmed.
When most folks hear the word “crowdfunding,” they think of sites like Kickstarter and IndieGogo in which fans can fund a new project and get souvenirs such as T-shirts. These innovations should be applauded, but they only scratch the surface of what crowdfunding could do. Viewed broadly, crowdfunding could bring together investor and entrepreneurs, allowing them to bypass “middle men” such as Wall Street banks.
But as I wrote recently in Forbes, if one of these crowdfunding projects currently were to offer funders a piece of the potential profits—instead of T-Shirts and other trinkets—it would run “into a brick wall from 1930s-era Securities and Exchange Commission (SEC) rules that treat a promise of a share of a business’s earnings a ‘securities offering.’”
As I explained, “this would subject entrepreneurs making a simple pitch for funding movies or music to the panoply of federal securities laws—including the behemoth Sarbanes-Oxley and Dodd-Frank laws—that publicly traded corporations must contend with every day at a cost of millions of dollars per year.”
The bipartisan Jumpstart Our Business Startups (JOBS) Act, signed by President Obama in 2012, was supposed to change this. And there has been some progress made in allowing entrepreneurs more freedom to market to wealthy investors.
In late September 2013, pursuant to the JOBS Act, the Securities and Exchange Commission (SEC) finally repealed the decades-old ban on “general solicitation” of investors by private companies. Entrepreneurs have long been able to sell portions of their companies to wealthy “accredited investors” (currently defined by the SEC as those who make at least $200,000 a year or have a net worth of $1 million or more, excluding the value of their principal residences) without the mounds of red tape that go with taking a company public.
But they couldn’t do any sort of public communication, let alone advertising, in search of these wealthy investors. Now they can, and venues like AngelList utilize crowdfunding techniques to pair entrepreneurs with accredited investors.
Non-wealthy investors, however, aren’t faring so well. Two-and-a-half years after the JOBS Act was signed into law, the SEC has yet to issue a rule implementing Title III’s provision to allow very limited equity crowdfunding for the general investing public.
The good news is that the attendees will share practical ideas about how to merge crowdfunding with investing and lending, and get organized to bring about the regulatory changes needed to bring these ideas to life. In addition to me, speakers include Ron Suber, president of prominent peer-to-peer lending site Prosper; Doug Lebda, CEO and founder of LendingTree; and Jon Medved, one of Israel’s leading venture capitalists and founder and CEO of the OurCrowd crowdfund investing site.
If you want to see a powerful vision of the future of crowdfunding, and learn how to fight the red tape inhibiting that future, then CFGE is the place to be.
(Readers who use the code SF25 to register will received a 25 percent discount off the registration cost.)