Where are the Rules for Crowdfunding for Investment?

The Recap

As you may have read here or around the web, federal legislation has passed that creates a pathway for crowdfunding for equity—which enables individuals (not just the qualified, wealthy individuals known as accredited investors).

Here are some of the main highlights of the history of this legislation:

• July 2010: Northern California-based Sustainable Economies Law Center files a petition with the Securities and Exchange Commission (SEC) requesting a crowdfunding exemption.
• Sept 2011: U.S House Representative Patrick McHenry (R, NC) introduces H.R. 2930 (Entrepreneur Access to Capital Act) which proposes a crowdfunding for equity exemption in Congress
• Nov 2011: U.S. Senator Scott Brown (R, MA) introduces S. 1971 (Democratizing Access to Capital Act) in the Senate which proposes a crowdfunding for equity exemption in the Senate
• Nov 2011: President Obama publicly supports the crowdfunding for equity efforts
• Nov 3rd 2011: House of Representatives passes H.R. 2930
• Dec 8th 2011: U.S. Senator Jeff Merkley (D, OR) introduces CROWDFUND ACT S. 1970 (different terms than the Congressional bill)
• Mar 22 2012:  Senates passes S. 1970
• Apr 5th 2012: President Obama signs the Jumpstart Our Business Startups (JOBS) Act by President Obama on April 5, 2012 which includes a crowdfunding for equity exemption.

There are a few amazing resources that can give you a visual, play-by-play, editorial, and contextual view of the crowdfunding legislation. Check them out:

• Timeline of U.S. Crowdfunding Bills designed by Dorothy Sanders
• The JOBS Act & Crowdfunding

Where the Crowdfunding Legislation is Now?

Paul Spinrad, who helped initiate the crowdfunding for equity legislation and who has been an avid blogger on the subject, noted in a July 2012 post that the SEC Chair Mary Schapiro anticipated that crowdfunding for equity rulemaking to be complete by the end of 2012.

However, since that time, Spinrad and others have reported that Schapiro will be stepping down as SEC Chair. The announcement has been confirmed by news outlets, and she is scheduled to step down on Dec. 14th 2012.

In his mid-November 2012 post for thecrowdcafe.com, titled “Dear SEC: The Right to Accept Risk Must be Ours” — investment crowdfunding researcher Jonathan Sandlund succinctly summarized parts of the JOBs Act related to crowdfunding and offered his view on how long it will take for the laws to be implemented. Notably, he said:

“Title II of the JOBS Act lifts the ban on general solicitation and advertising of security offerings, enabling companies to efficiently solicit and raise capital from a large (or small) number of accredited investors online. Effectively, Title II will kickstart crowdfunding from accredited investors (high net-worth individuals). While the SEC is well passed the Congressionally mandated deadline of July for Title II, many in the industry are cautiously optimistic that we’ll see action by the end of this year, or early next. Title III of the JOBS Act (The CROWDFUND Act) on the other hand, which creates a democratized private capital marketplace by allowing investors of all economic classes to participate, isn’t looking so good.”

The Skinny

Title II of the JOBS Act

what it does: lets companies solicit from accredited investors online
SEC rulemaking: was supposed to be passed by July 2012, likely to be passed Dec 2012 or early 2013

Title III of the JOBS Act

what it does: lets non-accredited investors invest smaller amounts in companies for equity
SEC rulemaking: was supposed to be passed by end of 2012, but looks now like it will be passed by end of 2013