In Innov8Social’s earlier post, “What is Crowdfunding”, we talked about the concept of raising funds through smaller investments or donations as a capital-raising option for a start-up or social enterprise—and limitations to crowdfunding investment due to securities laws.

That post also outlined the efforts to pass new legislation that would establish crowdfunding mechanisms to support small business, create jobs, and pave new pathways for innovation.
The House of Representatives took on crowdfunding in November

In November 2011, the House took on crowdfunding via the Entrepreneur Access to Capital Act (H.R. 2930) which passed 407-17. You can read the full post about the House’s bill and its key features here.

Now, it is the U.S. Senate’s turn
Last Friday, on December 2nd 2011, the United States Senate introduced its version of a crowdfunding initiative to the floor. Key features of the Senate bill include:
  • entrepreneurs could raise up to $1M from unlimited number of unaccredited investors (without registering with the Securities and Exchange Commission)
  • entrepreneurs seeking to raise capital through crowdfunding must do so through a website and must disclose risks to investors
  • entrepreneurs must incorporate as a business according the applicable state law and must file with the SEC
  • individual investors could invest up to $1000
Unlike the Senate Bill, the House bill enabled a $2M capital raise through crowdfunding. It also specified that individual investors could invest up to $10,000 (or 10% of their income).
The ultimate balancing act: supporting innovation and minimizing risk
While there has been bipartisan support for ushering in new securities provisions to encourage innovation, investment by unaccredited (i.e. non-wealthy) investors, and spur local job creation—there is also concern that we are moving to fast towards a future that can create new kinds of risk for new kinds of investors.

One group voicing their hesitation is the North American Securities Administrators Association. It fears that legislated crowdfunding measures could lead to speculative investment that could be risky to new or small-fund investors.

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