Caveat Investor

Amateur Hour: New Crowdinvesting Rules Mean Everyone Can Play Venture Capitalist

(Photo: James Cridland via Flickr)

It was glaringly sunny in Washington, D.C., on April 5, the day President Barack Obama signed the JOBS Act, and there was some confusion as to the location of the afterparty. One faction of Rose Garden attendees gathered on the roof of the W Hotel and wondered where everyone was. The rest assembled at Off The Record, a dimly lit bar in the basement of the Hay-Adams Hotel, and kicked things off with an icebreaker.

About 30 smartly dressed men and women, still sweating out the adrenaline of being three rows away from the president, stood in a circle. Many had worked with each other but never met. Each stated their names, the role they played in the bill, and perhaps a few words about the brave new world of so-called equity-based crowdfunding, which had just been legalized by one of the six constituent laws that make up the JOBS Act. The new rule will allow “ordinary Americans,” in the president’s words, to invest in a nonpublic company in exchange for shares for the first time since the enactment of the securities regulation that followed the 1929 stock market crash.

The mood was triumphant and boozy. Tim Rowe, a Cambridge-based venture capitalist, raised a glass and offered a toast to working together in the future. “The Marine Corps was founded in a bar in Philadelphia,” he said. “Big things can happen starting in a bar.” Attendees signed up to join a trade organization for the newly minted market. “There was the sense of elation that we had cracked the monopoly of Wall Street,” one attendee recalled. Read More

The Equity of the Crowds

The U.K. Already Has Equity-Based Crowdfunding, and This Startup Just Set a Record

(escapethecity.org)

U.S.-based crowdfunding sites like Kickstarter, Indiegogo and ArtistShare offer a huge range of creative perks like T-shirts, backstage access, chip clips, or a week’s worth of personal training alongside Bret Easton Ellis. But what if a startup could offer equity in the company to the little people who helped make it happen?

The JOBS Act, passed in April, gave the SEC a directive to clear the path for equity-based crowdfunding (some call it “crowdinvesting”) sites. The regulatory agency is deliberating over the rules now, with the goal of publishing the new rules by January. We’ll see how that goes, given how complicated crowdfunding is. What are the disclosure requirements for companies? What kind of due diligence will an equity-based crowdfunding “portal” have to do? Yes, the Act and the SEC are calling crowdfunding sites “portals.”

Meanwhile, across the pond, equity-based crowdfunding is already legal and underway. A London-based startup called Escape the City has raised £557,920 (roughly $892,481) on a £600,000 goal with 14 days to go on the equity crowdfunding platform Crowdcube. The startup upped its goal because of high demand. Escape the City is a social network somewhere between LinkedIn and Idealist.org; it aims to match dissatisfied corporate drones with new jobs, more noble jobs, or professional adventures abroad. Read More