Equity Crowdfunding

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In October 2013, the U.S. Securities and Exchange Commission issued proposed regulations to implement the provisions of Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012. Under Title III, startup companies would be allowed to use crowdfunding websites (such as Kickstarter and Indiegogo) to raise money for their companies from ordinary folks like you and me and issue stock in their companies to their crowdfunded investors.

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At the time this issue of the magazine went to press, after several months of public comment, the SEC had not yet acted to issue the final regulations that would make so-called ?equity crowdfunding? legal. I can think of two reasons why. First, SEC Commissioner Mary Jo White (who joined the SEC shortly before the proposed regulations were issued) is a prosecuting attorney, or more accurately, a ?cop.? Her tenure at the SEC has so far been marked mostly by actions to enforce the existing securities laws (chasing after insider traders, rogue investment bankers and other ?bad guys?) rather than making new regulations.

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The other reason has to do with the success of another part of the JOBS Act, known as ?Title II.? Under Title II of the JOBS Act, companies looking to issue securities to the public without doing an initial public offering can use general solicitation and general advertising methods to advertise their offerings, as long as they allow only accredited investors (extremely rich and/or sophisticated people who know what they are getting into) to purchase the securities. Unlike Title III of the JOBS Act, Title II did not require any implementing regulations from the SEC: Companies and angel investor websites such as AngelList leaped out of the starting gate and got into the Title II private placement business before the ink was even dry on the statute.?

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