On February 18, entrepreneur William Pryor successfully raised a £30,000 funding round for his U.K.-based oriental rugs business, Oriental Rugs of Bath. In return for the money, Pryor offered the 36 individuals who invested in Oriental Rugs of Bath a share of the company’s equity, divvying out 10% of the enterprise’s stock in total. This entire transaction took place online through an equity-based crowdfunding platform called Crowdcube.
This type of investing is currently illegal in America — but not for long.
Signed into law by President Obama on April 5, the Jumpstart Our Business Startups (JOBS) Act legalizes crowdfund investing in the United States. When the Securities and Exchange Commission’s nine-month legislative review process concludes, entrepreneurs across the country will be able to solicit and collect investments for their startups and small businesses via the Internet. But is the JOBS Act a beneficial piece of legislation for the average American? The bill’s ardent supporters argue it will democratize finance for the 99 percent and ameliorate the United States’ sputtering economy, while its loudest critics claim it will pave the way for another financial crisis. Whether the JOBS Act improves or depresses the American economy, it will fundamentally alter the country’s business ecosystem. It is, as President Obama called it, a “game-changer.”
© Image: Eric Blattberg / Crowdsourcing.org (photo: i-cio.com)
Clay Shirky is an American writer, consultant and teacher on the social and economic effects of Internet technologies — at least, according to Wikipedia, the crowdsourced encyclopedia for which he serves as an advisor. Shirky is also the author of Here Comes Everybody (2008) and Cognitive Surplus (2010), two books examining the results, ramifications and potential of aggregated individual action.
I recently spoke with web guru Clay Shirky about the JOBS Act, which President Obama signed into law on April 5. In the transcript below, Shirky explains why he “would love to be able to offer essentially wholehearted support of the crowdfunding law,” but has several reservations about the regulatory relief embedded in the bill. (Spoiler: Much comes down to the SEC’s interpretation of the law, which is ostensibly scheduled to conclude in the first few days of 2013.) Shirky also discusses Kickstarter’s present dominance in the crowdfunding space, the vagaries of pre-JOBS Act law in relation to crowdfunding, and the effect of the JOBS Act on the current startup ecosystem and traditional venture capital.
The Startup Exemption team (left to right: Jason Best, Zak Cassady-Dorion, Sherwood Neiss)
On April 5, President Obama signed the JOBS Act into law, legalizing crowdfund investing in the United States. Although numerous people influenced the legislative process surrounding crowdfunding and JOBS Act, Sherwood Neiss and his fellow Startup Exemption co-founders were central figures in that process. The bill would not have passed — in fact, would not even exist — if not for the tireless efforts of these three individuals over the last 15 months. Neiss and his partners crafted the original crowdfund investing framework (which remains largely unchanged in the final JOBS Act), testified at two Congressional hearings surrounding access to capital for entrepreneurs, and lobbied vigorously on Capitol Hill for the ideal implementation and passage of a crowdfund investing bill.
I recently spoke with Sherwood Neiss about the JOBS Act: its conceptualization, the subsequent legislative process, its ultimate passage, its potential benefits and drawbacks, its media and public reception, and much more. The first part of that discussion is available here; the second part is available after the jump.
Eric Blattberg / Crowdsourcing.org (photo: Startup Exemption)
I recently published part one of my interview with Sherwood Neiss, co-founder of Startup Exemption, on Crowdsourcing.org. Check it out here.
For those of you who don’t want to read the whole thing — I don’t blame you, it’s quite long — one of the more interesting topics discussed was his reaction to the critics who claim the bill is “fraud-friendly,” “criminogenic,” even an “atrocity.” Neiss discusses just how difficult it is to actually invest through one of these crowdfunding intermediaries. Here’s that discussion…
The Senate this week passed H.R. 3606 — colloquially referred to as “the JOBS Act” or “the crowdfunding bill” — on a 73-26 vote. The package, which loosens a number of federal regulations, will allow startups and small businesses to solicit investments via the Internet.
The Senate also approved an amendment from Senators Jeff Merkley (D-OR) and Scott Brown (R-MA) on a 64-35 vote. The S. 1884 amendment includes a number of safeguards for investors: it requires publicly audited financials for companies seeking over $500,000, additional accountability for companies, industry registration for funding portals, scalable investment caps for investors, a three-week waiting period after funding closes (before funds are received) to uncover potential fraud, and disclosure of capital-raising fees. (Click here for more details on the Merkley-Brown amendment.) Continue reading