Why Crowdfund for startup Businesses and what’s next

Crowdfunding was initially developed to fund art, quirky projects, and charities. That is, crowdfunding not offer an opportunity for funders to benefit from profit participation or ownership of the resulting project. Therefore, quite luckily, the Securities and Exchange Commision (SEC) did not concern itself with crowdfunding.

Crowdfunding has evolved. Now, Launcht is part of a movement to use crowdfunding to help businesses amass contributed seed capital. For crowdfunding to continue to evolve, it needs to be seen as a capital formation strategy, one that offers investors partial ownership in a developing business and the opportunity for a return on their invested capital. While the current Launcht model is based on gifted money with no profit participation, in the near future we would like to allow funders to truly invest in the businesses through Launcht. Current regulations stand in the way of this, in a couple ways:

1. Private companies can currently only have 500 shareholders before being required to file public disclosures of many their activities.

2. Only accredited investors can purchase private securities.

As for the first roadblock, legislation recently proposed by Rep. David Schweikert (R- Ariz.) would increase the number of investors a private company can have to 1,000 from 500. I encourage you to Contact your Representative and tell them you support “H.R. 2167: Private Company Flexibility and Growth Act”. The passage of this legislation would free up the SEC to take action on the second roadblock.

To that end, the SEC is currently reviewing a proposal that would allow a private company to conduct an offering of up to a maximum of $100,000 of equity securities, with a cap on individual investments of $100. We would prefer to see an individual investment cap of $1000. Regardless, action needs to be taken on this front, but the first step is the passage of Rep. Schwiekert’s bill.

Get involved and help Crowdfunding come into its own.

This entry was posted in Current Events in Crowdfunding. Bookmark the permalink.

Leave a Reply