Equity crowdfunding means you can “be your own venture capitalist,” as our executive publisher Addison Wiggin put it in 2013.
That is, you could invest in a new coffee shop around the block. Or you could invest in that neighbor kid’s garage startup — the kid you always suspected might be the next Bill Gates or Steve Jobs.
For decades, that was the exclusive province of the rich — or, in government parlance, “accredited investors” with a net worth of at least $1 million or a family income of at least $300,000. Ordinary peons were shut off from such investments — for your own good, the government said.
But equity crowdfunding got the green light under the Jumpstart Our Business Startups (JOBS) Act, signed into law in April 2012.
Government being what it is, the SEC took 3½ years to draw up the regulations implementing the law. On the day the SEC approved those regulations, we dared to express hope the rules had “the potential to liberate small business… unleash the American spirit of innovation anew… and maybe even drag the nation out of its eight-year economic funk.”
Yeah, well, forget all that.
In fairness to ourselves, we did say the devil would be in the details. And it turns out Satan’s grubby fingerprints can be found throughout the regulations’ 685 pages.
Sure, in theory, you can invest up to $2,000 or 5% of your annual income or net worth — whichever is greater — in that neighbor kid’s tech venture.
But really — will the neighbor kid be inclined to file a “Form C” with the feds? It runs 20 pages.
The SEC has helpfully come up with an estimate of the costs to comply with its regulations. A startup looking to raise between $500,000 and $1 million will have to fork over as much as $94,000 upfront for lawyers and accountants… and up to $13,000 each year after.
It’s enough to make your neighbor kid give up his entrepreneurial dreams and go back to chasing girls and playing video games.
Until http://www.sprowtt.com that automates the entire process for that your dreamer. Now a teen can do CROWD FUDNING. Would CEO SPACE Prefer the cost and time barrirs were lower – YES – but two weeks to get an offering for a one million dollar round out the door…