Equity Crowdfunding Turns Six Months Old: Looking at Title III for Investors and Businesses
November 16, 2016 marked the six-month anniversary of Title III of the JOBS Act of 2012 being fully implemented. Title III and the rules promulgated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) allow businesses to raise capital through “equity crowdfunding.” This is the act of raising capital from others via the internet, by seeking small investments from a large number of potential investors through the use of licensed broker-dealers or internet funding portals. These investments are exempt from the traditional security registration requirements. People are generally familiar with existing “crowdfunding” platforms such as Kickstarter, Indiegogo, and GoFundMe which have been in existence since at least 2008. These platforms practice rewards-based crowdfunding. Backers give a “campaign” money, and the backer gets back a “reward,” i.e., a thank you note or the first edition of a product. Title III, however, allows for “equity crowdfunding,” which is the ability to buy ownership in an early-stage company and hopefully reap a monetary return on that investment. Instead of getting that thank you note or new product, the investor is getting a piece of equity in the company he or she just invested in. Many industry professionals and commentators expected “equity crowdfunding” to be a “slow burn” due to regulatory hurdles, a lack...