(flickr.com/portland_mike)

Equity-based crowdfunding, whereby unaccredited investors plunk down money in a company in exchange for more money down the road, is set to be legal sometime in early 2013. Small investors and unfunded startups are waiting until after the Securities and Exchange Commission figures out how to write the rules so widows and orphans don't get fleeced of their last pennies. That could take a while. But the timeline hasn't stopped startups from competing to be the very first equity crowdfunding site. Some aren't even waiting until the law is finalized.

"Our platform is scheduled to launch in July as the first operating equity based crowdfunding platform," one Betabeat commenter wrote on behalf of Smart Money Entrepreneurs, a platform for accredited and unaccredited investors alike to find and vet startups to fund. July is ambitious, considering equity-based crowdfunding for small-time investors is illegal until the SEC and FINRA make their final decisions in January 2013 at the earliest.

Smart Money Entrepreneurs can, however, set up equity-based crowdfunding with accredited investors while waiting for the rules to come down regarding unaccredited investors. The startup can also set up all but the final functionality for unaccredited investors, preparing for a last-minute dash across the finish line once the specific requirements for equity crowdfunding platforms have been laid out by the SEC.

Smart Money Entrepreneurs is just one of dozens of portals lining up to start taking other people's money. (The JOBS Act, which made this type of funding legal, calls crowdfunding sites "portals.") One such startup portal, Peoples VC, is also pushing itself as the "first mover" in equity-based crowdfunding, calling itself "the # 1 Crowd-Powered equity-based Crowdfunding Portal" even though no equity-based crowdfunding portals are open yet.

Hedgeable, an online investment management service, has declared it will be "the only platform that will charge nothing for companies to list, nothing for buyers to buy, and will make no money on transactions, regardless of how SEC defines the role of similar platforms, beginning in 2013." Count chickens much?

(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.

Right now, new businesses have limited ways to raise capital. They can petition venture capitalists to invest, or beg family and friends for cash. Recently, entrepreneurs have also started appealing to the crowd through sites like Kickstarter. After being rejected by venture capitalists, one Palo Alto company called Pebble raised more than $10 million on Kickstarter to build a touch-screen “smartwatch” that can be programmed by an iPhone.

Equity-based crowdfunding, also called crowdfund investing or crowdinvesting (the practice is so new that we’ve yet to settle on a vernacular) is the new IPO. Or rather, it will be in about six months, once the Securities and Exchange Commission hammers out the nuances of the law. Under the new rules, entrepreneurs can solicit up to $1 million from the public in exchange for a slice of future profits. Pebble promised to ship watches in 2013 to everyone who donated. If equity-based crowdfunding had been legal, Pebble could have sent its backers a stock certificate in addition to a gizmo.

Advocates of equity-based crowdfunding believe the change is long overdue. Among those clinking pints at Off The Record were Woodie Neiss, a motivational speaker and former consultant who helped spearhead the 460-day lobbying effort; Amy Cortese, the journalist and author of Locavesting; Jenny Kassan, who three years ago petitioned the SEC to let people invest up to $100 in a business without having to file; and Michael Shuman of Cutting Edge Capital, who argued three years ago that $100 of risk was “no more dangerous to an investor than a dinner for two at a Chinese restaurant.”

Of the equity-based crowdfunding enthusiasts, perhaps the most ebullient are the entrepreneurs who plan to launch websites where unaccredited investors can commit $2,000 to $100,000 in a year, depending on their income and net worth. In exchange, they’ll own a slice of the next Facebook, the next Shake Shack or the next Enron, at the early stage normally reserved for venture capital firms and millionaires.

New York, according to recent Wharton grad Ryan Feit, is the epicenter of crowdfunding—and likely will be the same for equity-based crowdfunding. Mr. Feit’s yet-to-launch site, SeedInvest, works out of the same Soho loft as Kickstarter competitor Indiegogo, and both were supporters of the new law. On a recent Thursday morning, Mr. Feit and three other neatly dressed Wharton grads were stationed at their Macbooks, as they have been for the month since they graduated and moved to New York.

Only one, James Han, is actually building the site. The other three are working on “education,” “setting up partnerships,” talking to the SEC and giving media interviews, Mr. Feit said, when asked what there is to work on given that the first crowdfunded investment is still at least six months away. “A lot of the fun is figuring out what it’s going to look like,” he said. “It’s way more complicated than just setting up a page that looks like Kickstarter. We have to be very nimble to adapt.”

According to JOBS, the new widows-and-orphans investor class must go through so-called “portals,” Kickstarter-esque intermediaries that can ensure a minimum level of diligence so people who are already underwater on their mortgages don’t withdraw their last $3,000 hoping to score big enough to take care of their grandchildren.

Regulatory agencies have until January to write the rules for the portals, and the deadline will likely be extended. Still, portals are already popping up. Crowdfunder, EarlyShares, FundRazr and PleaseFund.us have all already been certified under the nascent Crowdfunding Accreditation for Platform Standards, or CAPS, a program developed by the independent website Crowdsourcing.org. WeFunder, a Boston-based portal, launched two months before the law was passed, with nothing more than a homepage and an online petition addressed to Congress. The site has remained essentially frozen since then. “Soon, you’ll be able to invest as little as $100 in your favorite startups,” it says.

Mike Norman, one of WeFunder’s four founders, acknowledged that he already has competitors in a market that does not yet exist. “You need to get it right,” he said. “There are a lot of folks who are going to try to get into this and it’s not going to go well. A small subset will really rise to the top.”

There are now more than 450 sites offering donation-based crowdfunding or perks-based crowdfunding à la Kickstarter, where the writer Bret Easton Ellis just financed his new film, The Canyons. (Backers who pledged $1 got a digital poster; those who pledged $3,000 or more get to work out with Mr. Ellis and his personal trainer for a week.) This type of crowdfunding has been around for more than a decade but has rapidly accelerated in the last three years, financing multiple multimillion-dollar projects.

But the hype around perks-based crowdfunding is nothing compared to the hype around equity-based crowdfunding. There are at least 100 portals in various stages of development, estimated Vince Molinari, founder of New York-based Gate Technologies, a broker-dealer that plans to provide services to the new portals. “I heard as high as 200,” he said, although “there will be some attrition because of the timeline.”

Maybe it’s the yearning for hope in a desperate economy, or maybe it’s some vestige of post-Occupy Wall Street popular empowerment. Maybe it’s just the glitz of The Social Network and the fact that half the hipsters in Dumbo have quit their bands to do a startup. Fred Wilson of Union Square Ventures, perhaps the best-known early-stage venture capital firm in New York, imagines the market for equity-based crowdfunding could come in around $300 billion. The category has the potential to put some traditional venture capitalists out to pasture—or worse, he joked, drive them into blogging.

“Philosophically, I think it’s wonderful,” said Slava Rubin, the founder of Indiegogo, a crowdfunding platform that, like Kickstarter, rewards backers with perks, not equity. Mr. Rubin, who splits his time between New York, San Francisco and conference keynotes, was also invited to the White House for the signing, although Indiegogo is still evaluating whether to get into the equity-based crowdfunding businesses.

Indiegogo just raised $15 million from venture capitalists for the old kind of crowdfunding, so Mr. Rubin feels no pressure to jump into the new kind. “It’s hard to decide anything when you don’t have the facts yet,” he said. “I think it’s really interesting that so many people are trying to figure out exactly what’s going to happen.”

(Kickstarter cofounder Perry Chen has said Kickstarter will stick to rewards-based funding. "We’re not gearing up for the equity wave if it comes. The real disruption is doing it without equity," he said recently in an interview with GigaOM.)

First, the SEC must finalize the rules for disclosure and advertising, and untangle what accredited and unaccredited investors will be allowed to do on the new portals. (The first thing the agency did was ask for public comment on the proposed rules.) Then the Financial Industry Regulatory Authority must write its own rules for portals. Until that happens, equity-based crowdfunding is illegal, the SEC has said.

There is some concern that the commission will suffocate the new industry. “The SEC is a regulatory body, so they get paid to regulate. They don’t really get paid extra money for not regulating,” Mr. Rubin said. “I’m actually quite surprised this is happening.”

Still, most equity crowdfunding proponents are careful to pay homage to the SEC, wary of accusations that equity-based crowdfunding will open the door for widespread ripoffs. As an investment, few things are riskier than a startup. The Washington State Department of Financial Institutions is already worried, issuing a press release after the JOBS Act passed: “When you see an offering on the Internet—whether it is on a crowdfunding portal, in an online newsletter, on a message board or in a chat room—you should assume it is a scam until you have done your homework and proven otherwise.”

Equity-based crowdfunding is already legal in the U.K., where the rules amount to basically “buyer beware.” Kickstarter, Indiegogo and other perks-based crowdfunding platforms have had low levels of fraud despite a firm “caveat backer” approach, and scams that do slip through are often detected right away.

Internet sleuths discovered at the end of April that a video game project raising $80,000 on Kickstarter was ripping off other artists’ work (and was likely manned not by a team of 12 industry veterans, as it claimed, by just one young man with no experience building video games). Although the project’s creator initially protested that the game was “well in progress and is NOT a scam of any kind,” the story spread from forum to forum and eventually reached his former employer, who started emailing journalists. Within 24 hours, the would-be entrepreneur canceled the campaign and disappeared.

Last year, venture capital firms invested $41 million in a social network called Color that was declared an immediate failure after botching its highly-publicized launch. Color went into hiding, reemerged about eight months later as a video app for Facebook and is unlikely to ever make money. Scores of startups that went through the elite accelerators at Y Combinator and TechStars, which accept between one and three percent of applicants, fail every year. Even Mark Cuban lost money on Facebook.

It's true that crowdfunding can test whether there is a market for an idea and provide an evangelical base of early users. But given the dubiousness of companies that are already being professionally funded, we’re in for a spate of boneheaded startups now that Joe Blow, MBA, can blast an email out to his frat brothers and hustle up $500,000 for the world’s first unmanned fast-food delivery drone.

As it turns out, overambitious projects are more common than outright scams on Kickstarter. Eco-friendly sandals, artsy-looking jellyfish tanks and a $100 pen made by a Brooklyn design studio all disappointed backers by failing to meet expectations, or simply never delivering a finished product at all. The equity crowdfunding provision passed in part on hopes that it would create jobs. It’s worth remembering that when the economy is bad, fraud tends to spike—and so do sales of lottery tickets.

Mr. Kane. (Quora)

We’ve discussed before how the JOBS Act will allow anyone--including people who are not accredited investment professionals--to put money into startups via crowdfunding. It’ll be nine months before the SEC releases the final rules, but that doesn’t mean the sector is standing still. Today another player jumped into the fray: Online investment management service Hedgeable has announced that in early 2013, it will launch its own crowdfunding platform--and it’ll be free of charge.

A statement released today promises:

Hedgeable will have the only platform that will charge nothing for companies to list, nothing for buyers to buy, and will make no money on transactions, regardless of how SEC defines the role of similar platforms, beginning in 2013.

In a phone conversation with Betabeat, Hedgeable CEO Mike Kane stressed that the business model forces dedicated equity-based crowdfunding sites to charge some sort of fee. Kickstarter (which is simply crowdfunding and involves no equity, but offers an instructive example) currently takes 5 percent from every successful project's total funds raised. Hedgeable, on the other hand, doesn't have to make money off the platform, nor is that part of the plan. It's an offering complementary to the rest of the business, a technology-based investment management firm with a freemium business model. “We already offer retirement investments, people’s IRAs, 401(k)s, so this is just another piece of the puzzle,” he explained.

Mr. Kane also pointed out that Hedgeable is well-positioned to be up and running soon after the final rules are released, because the company is already registered with the SEC as an advisor. In fact, he explained, "we could offer this now to just accredited investors. There’s a few companies that do that." But they're rather wait.

It’s the fact they’re geared to portfolio management that differentiates Hedgeable from other would-be crowdfunders. Mr. Kane told us, “There’s going to be a lot of unsophisticated platforms that get put out there, and it’s going to be very dangerous, we believe.” He continued: “There’s going to be no risk management. The buyers’ money probably should be in a retirement account, and they think they’re going to get rich and put it into the next Facebook.” Thanks to the technology platform they've built for the rest of the business, Hedgeable can offer features like risk comparison and the ability to hedge investments.

"There's going to be a lot of people who get into this space but they’re not going to have the prerequistes -- due diligence, risk management. We’re already a sophisticated investment platform. It makes a lot more sense for someone to come on our platform, plus we’re not going to charge them for it," Mr. Kane said.

Hedgeable is currently soliciting interest from both investors and companies seeking funding. They hope to reach 2,000 of each in time to launch as soon as the SEC gives the go-ahead.

Mr. Lee

If you've been to any NY Tech Day events recently, you may have heard of Return on Change, a new startup that allows every day individuals to help fund socially-conscious startup companies. Aimed at exploiting a hole in the market created by the passage of the JOBS Act, Return on Change officially launched its private beta site today.

According to a press release:

Entrepreneurs with great ideas need capital funding to jumpstart their businesses, and investors are looking to help fund the next big idea. RoC provides the online medium through which startup companies and entrepreneurs will be able to pool capital through crowdsourcing.

It's an interesting idea, and one that could gain major traction once the JOBS Act goes into effect in nine months. Even more interesting is that Return on Change focuses on startups with do-gooder missions, and not just regular old social media companies.

Return on Change is helmed by 25-year-old Sang Lee, who previously worked at several European banking institutions, and currently serves as CEO and cofounder of RoC.

"Return on Change is a crowd investing platform for high-impact, socially-conscious startups that are really looking to find ways to change the world, or at least change the way we interact with the world," Mr. Lee told Betabeat.

Mr. Lee said that the exact mechanisms of the platform will evolve as the SEC's rule-making evolves. "When the legislation ships out, while companies are committed to use crowdfunding to raise investments, their issuers are not permitted to do it themselves and they have to go through an intermediary organization," he said. "We’ll be registered with the SEC and offer a comprehensive platform connecting the right people, and we also have the mechanisms and the tools to really put yourself out there."

The passage of the JOBS Act allows every day people to invest in startups, but most individuals don't know how the process works. With investing, there are nuances that the platform will assist companies and individuals with, including documentation, so that investors can properly know what they're getting when they fund the company, Mr. Lee said.

There will be no cost for startups to post their ideas up on the platform; the actual revenue model will depend on the SEC's rule making, because they haven't finalized how intermediaries should appropriately be compensated, he said.

Since the SEC rules surrounding the JOBS Act have yet to be finalized, tech startups can't yet directly solicit investments, Mr. Lee said. Instead, the company is hosting a contest for the most innovative and change-inducing startup ideas. "The first 100 startups that meet RoC’s criteria will have the opportunity to win one of three $1,000 funding prizes," reads the press release. "The company is seeking startups in the areas of clean energy, biomedical, social ventures and technology."

Ironically, Return on Change is in its own bootstrapping phase: Mr. Lee said that they've acquired seed funding, but don't yet have institutional investors. Wonder if they can use their own platform to help with that?

(flickr.com/Sreejith K)

The JOBS Act is a done deal, and as we reported last week, that means the doors to early-stage startup investment are about to swing wide open. But before everyone runs to their favorite crowdfunding platform, the SEC needs to come up with some rules. They’ve got nine months, and they’re taking suggestions. Perhaps you have some thoughts?

From the commission’s website:

The Jumpstart Our Business Startups Act includes provisions that require the SEC to undertake various initiatives, including rulemaking and studies touching on capital formation, disclosure and registration requirements.
Members of the public interested in making their views known on these matters, even before official comment periods may be opened, are invited to submit those views via the links below.

The statement also notes they’ll post every submission on their website unedited, adding, “You should only make submissions that you wish to make available publicly.”

The SEC: apparently not huge fans of anonymous commenters.

(flickr.com/portland_mike)

Do you feel like there are a lot of startups? We feel like there are a lot of startups. The JOBS Act, an amalgamation of six bills that passed through Congress, is likely going to make even more startups, thanks to a section that will allow the average American to invest limited amounts of money in business plans. AngelList, the crowdfunding platform Indiegogo, and a crop of equity-based crowdfunding platforms are poised to take advantage—but not for a while. The Act requires the SEC to hammer out the rules for equity-based crowdfunding within nine months.

"The SEC needs to determine the actual guidelines," said Nick Tommarello, one of the founders of WeFunder, an equity-based crowdfunding platform that decided to launch a preliminary site before the law passed. "Then we apply to the SEC."

The SEC has said publicly that it is "cautious" about the new crowdfunding /crowd investing rules. The agency could have loosened the rules on who can invest earlier, but declined to do so on its own, Mr. Tommarello said.

"This is exactly how government can catalyze job creation, encourage the entrepreneurial spirit and maximize the possibilities of online crowdfunding platforms like Indiegogo simply through cutting regulations – and at zero cost to tax payers," Indiegogo founder Slava Rubin, who  also participated in a roundtable discussion with President Obama before the signing, said in a statement. "There are more than 5,000 current funding projects on Indiegogo and now the law is finally catching up to technology. We bank online, shop online and there's no reason we shouldn't be able to help create jobs online. We're excited how this bill will democratize fundraising and as demand develops for equity crowdfunding we expect to enter that space."

Two of WeFunder's cofounders were also invited to the ceremony.

New crowdfunding platforms CircleUp and Crowdfunder are already fighting for a toehold in the space. AngelList has also expressed interest. Kickstarter declined to comment.

AngelList and WeFunder are also part of a trade organization being referred to for now as the Self Regulating Organization that will be consulting with the SEC on crowdfunding rules. The organization will have a formal roll call of members today.

CORRECTION, 4/6/12 3:25 p.m.: AngelList is not part of the SRO, AngelList's Kevin Laws said in an email. "While we figure out what (if anything) we will do in that world, we have not joined any trade organization or SRO. We were invited to a meeting at which they discussed it and put our contact info down so people would know how to contact us, but that was it." Betabeat regrets the error.

Before the JOBS Act, demo days were only legal if presenters didn't mention money, or if every attendee was verified as an accredited investor.

Of key importance to private fund managers engaging in fundraising, the JOBS Act directs the Securities and Exchange Commission ("SEC") to eliminate the prohibition on general solicitation and advertising applicable to private offerings of securities to "accredited investors" under Rule 506 of Regulation D under the U.S. Securities Act of 1933 (the "Securities Act"). -JDSupra

For whatever reasons, sometimes startups and investors don't want to talk about money. Publicly, that is. Amongst themselves, it's quite standard.

There are myriad reasons why a source won't disclose funding information to a journalist. A deal may not have closed, a company may be trying to fly low, or the financiers involved may be minor players who don't want the spotlight. The secrecy may be because the investors and startups want to coordinate publicity in a way that has maximum impact (read: send press release exclusively to the TechCrunch rewrite robot). Sometimes, every party is worried about stepping on the other parties' toes. But the reason given is always the same—blame it on the SEC.

After the president signs the JOBS Act today, that excuse will no longer be valid.

Recently, Betabeat was given access to a website with fundraising information about a group of startups, as long as we swore to secrecy "due to security laws." Foursquare has been extremely cagey about its secondary sale of private employee stock for the same reason. The security laws excuse was already a bit questionable since the SEC never enforced this rule. The prohibition against advertising and general solicitation, originally intended to protect unsavvy common folk from being swindled into risky investments, also meant most demo days are technically illegal. But not for long!

"There are only a few hours left for you to tell me that you 'can't discuss fundraising' due to anti-marketing regulations," Fortune's Dan Primack wrote in his Term Sheet newsletter this morning. "Once Obama puts pen to paper, any reticence to talk is on you, not the government." You're all free to tell us all your fundraising details. Hooray! Tips@betabeat.com!

JOBS Act supports via Angel List

Ready your startups, the early stage investing climate is about to go into overdrive. This afternoon, the JOBS Act (or Jumpstart Our Business Startups Act) passed in the House with an overwhelming vote of 380-41. Next, the bill moves to President Obama, who is expected to sign it into law.

It's been a bit of a bumpy ride. The JOBS Act originally passed in the House a few weeks ago with a 390-23 vote a couple weeks ago. The Senate's version of the bill, called the CROWDFUND Act (or Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act), added a number of safeguards for investors and passed last week 73-26. The JOBS Act was then revised to reconcile with the Senate's bill, which is why the final version had to move back to the House for another vote. 

As the Washington Post reports, President Obama's support for the bill "has put him at odds with frequent allies, including labor unions and consumer and regulatory groups." Although the bill has been buoyed by overwhelming support from the tech community, "Critics say that the changes would allow firms to avoid disclosing crucial financial information and elude government oversight, opening the door to fraud and investor abuse," adds the Post.

We detailed some of the crucial changes the bill will bring about, including increasing the 500-shareholder cap up to 2,000 investors before companies have to disclose their financials and allowing unaccredited investors to contribute limited amounts to small companies via crowdfunding platforms.

For a more thoughtful take on what this means for the startup world from a veteran tech investor, check out Rick Webb's incisive column from earlier today.

It's worth noting, however, that Mr. Webb isn't the only techie with misgivings.

@naval @katedmitchell I for one think this Jobs act is a terrible idea and sec would neuter it big time. Cc @davewiner

— Om Malik (@om) March 27, 2012

Mr. Winer's response? Cross your fingers.

@om @naval @katedmitchell -- actually I read that it was neutered before it passed. In any case, nothing can be done now. Hope for the best.

— Dave Winer ☮ (@davewiner) March 27, 2012

Mr. Webb.

In one of my first Betabeat columns, I wrote about my concerns that the tech bubble has been only tempered by the larger economy. Once that economy rebounds, the unbridled enthusiasm in the tech sector will take off and the bubble will enter into the danger zone.

Even earlier--one year ago next week--I wrote my most popular blog post of all time. It was entitled "on the bubble." I wrote it on my Tumblr. It was hella popular. Really. I wrote it one Saturday afternoon, in an almost stream of consciousness rant. I woke up, had some soup, and grabbed a Diet Coke and started writing. You can tell, when you read it (and do!) that it sort of hangs together, but that I come across new ideas as I'm writing it.

The basic premise of the piece, if you don't feel like reading all 2,000 words of it, is that we are in the early stages of a tech bubble, and that most of these companies are funded by advertising, and advertisers don't spend enough money, worldwide, to turn more than a few of these startups into "the next Google" or "the next Facebook," even if all the ad money in the world went online. I still believe that. And I still believe that we're in a bubble.

Finally, in the follow up discussions around my bubble post, I made this observation:

"We’re already hearing rumblings from the tech industry about how SOX [Sarbanes-Oxley --ed.] is burdensome, and SOX needs to be reworked, and SOX is interfering in the tech industry’s innovation. But it is not. SOX is going to be doing its job in this bubble. And if you want to actually look to see when this bubble’s gone to far, I would actually say that one of the easiest ways to measure how close we are to bubble busting, is to watch the chatter around SOX or, god forbid, action that lessens it. We’re at the end, then."

Well, well, well. Little did I know it would come this soon.

Being a tech investor, one would think I'd be all for the JOBS Act. And there are some worthy things in there. I like going to demo days, where startups can pitch their new startup ideas to a room of people. It's arguable those are illegal as general solicitations. Most responsible demo days make some effort to ensure that the audience consists of accredited investors (those who can legally invest in private startups), but not all of them. The law is burdensome here.

And I kind of get that Kickstarter could be a great way for a company to raise money. There are times I'd love to put in maybe a grand into a company if lots of other people do. That should probably be legal for more people than just accredited investors. Part of me worries that the "good" investments (apologies for the intentional scare quotes) could get investment anyhow, and that would leave only the bad ones, but I think, in practicality that won't always be the case. I love Kickstarter and can see many great uses for it as a means to raise funds for a new company. And I recognize not every entrepreneur with a great idea has the network I do. Who you know shouldn't necessarily be an obstacle to getting your great idea funded.

But I cannot shake my concerns about the JOBS Act on a more macro level, for precisely the reasons I mentioned in my article a year ago. SOX was implemented for a reason. The last time there was a dot com boom, things got really out of hand when the investing expanded beyond the tech investor class. Chris Dixon has said, "I think it’s a good thing that the speculation on large private tech companies is happening in secondary markets where the risks are being taken by institutions or wealthy individuals. This is in stark contrast to the dot-com bubble of the 90s where many of the people holding the bag when bubble popped were non-rich people who bought stocks through public markets. Obviously this could change if we have a bunch of tech IPOs."

Whether the bubble exists yet or not in tech, it's still largely confined to the wealthy and the tech investors (though institutional and retirement funds are definitely migrating in). So. Now we're going to change that? We're going to gut the very regulation that is preventing us from making the same mistake twice right when we might need it most?

The bill is going to pass. I am grateful for the Senate's tweaking of the various limits in the bill to make things safer. I'm proud that the Internet community rallied around this cause, flexed its growing lobbying muscles and got the job done. I'm psyched that I won't be breaking the law by going to a demo day. And good on ya, Kickstarter, if you can start launching companies as awesome as the products you've launched.

But I can't shake my thoughts of the victims of the Enron accounting scandal, whose lives were profoundly impacted by their lies. Sarbanes-Oxley was not ill-conceived, and most of its more onerous provisions are not applicable to pre-IPO startups and small public companies.

More than that, I'm vaguely amazed that after our financial meltdown, amidst our collective guilt and realization that we missed our window for re-regulating our financial industry, that one of our proudest accomplishments is to DE-regulate further.

Finally, I can't shake my own words from a year ago: when we see SOX being gutted, that's a sign that the bubble is coming.

Rick Webb co-founded The Barbarian Group, a digital ad agency, and is now a writer and angel investor in the tech industry.

Some familiar faces among AngelList's petition to pass the JOBS Act. (via angel.co/jobs-act/thank-you)

Update: On March 27th, the House passed a reconciled version of the JOBS Act, which includes the provisions from the Senate's CROWDFUND Act, detailed below.

This afternoon, the Senate passed the Crowdfund Act by a resounding 73-26 vote. If you've been following the JOBS Act, which has won support from venture capitalists and founders alike (for evidence, just scroll down to this petition's list of supporters), the Crowdfund Act is the Senate's version of the JOBS bill, which now includes the requirement that startups looking to raise capital do so from SEC-approved websites.

The JOBS Act, short for  Jumpstart Our Business Startups, centered around rolling back some investor protections in the name of making it easier for small businesses to raise capital.

Although the JOBS bill passed in the House in a 390-23 vote a couple weeks ago, because legislators were successful in amending a number of "more stringent safeguards for investors," the Crowdfunding Act will need to be reconciled with the JOBS Act and head back to the House, rather than to President Obama for approval, reports Politico.

The debate surrounding the legislation was whether rolling back protections would lead to fraud. The tech community overwhelming argued that regulations such as the 500-shareholder, being able to publicly discuss raising funds, and using crowd-funding platforms were holding them back. The amendments in the Crowdfund Act are designed to protect non-accredited investors, or as TechCrunch calls 'em, "Your Mom."

If it passes in the House, what will it mean for startups?

On Fortune.com, Dan Primack has a nice breakdown of the relevant changes to existing SEC regulations:

Shareholder Rule

Currently, once you hit the 500 shareholder cap, companies have to make their financials public. This bill would increase the threshold to 2,000 shareholders, which Mr. Primack calls an improvement, but "just as arbitrary."

Crowdfunding Platforms

Mr. Primack calls this the "Kickstarter-for-equity provision," which would enable platforms like WeFunder, which has been waiting for Congressional approval, to let startups issue shares in exchange for equity.

"This basically is for companies that either are too small for traditional angel/VC funding, or companies that are unable to secure such capital. In other words, we're probably talking about a proliferation of thousands of lousy companies. But if just one or two become the next Facebook, then the trade-off is worth it."

Well, either that or the Enron of startups swindles money from regular folks and no one gets to write articles about how Silicon Valley "is the opposite of Goldman Sachs," anymore.

As one commenter noted in our post about WeFunder, the concept opened up opportunities, but "It sounds like you forgo the control that comes with a larger individual investment, as well as those juicy preferred dividends that come with many Series A investments (great news for the startup though!!)."

General Solicitation

Currently, Regulation D prohibits issuers, which includes privates companies and some VC and private equity funds, from "general solicitation" of investors. The new bill says sayonara to that restriction although only accredited investors can participate in Regulation D offerings. On the one hand, it means you won't have to wait for a leak to the press to find out that Chris Sacca is raising a new fund. On the other hand, take a look at the charges the SEC recently brought against Felix Investments to get a picture of how quickly things can turn into a boiler room scenario.

Reducing Costs of Going Public

Perhaps you've noticed that hot startups from Zynga to LinkedIn to Groupon and soon Facebook have gone public recently? Well Congress hasn't. This provision is to address what Mr. Primack calls "the imaginary IPO crisis." Thus to reduce the costs of going public, the bill proposes reducing investor protections, such as one that prohibits analysts at investment banks from offering pre-IPO research on their own clients. As Mr. Primack noted earlier:

"Going public is not supposed to be a cakewalk. We've already been through an IPO environment where all you needed was a clever URL and a fuzzy mascot, and the results weren't pretty."

Protection for Investors

One of the amendments to the bill that passed today will require companies raising up to $1 million to share their financials with prospective investors. The same amendment would prevent investors with less than $100,000 in annual income from putting more than 5 percent of their income into a crowdfunded security. You can thank Congress later, Mom.