Here is a post for those of you coming up to speed on what equity crowdfunding is, how it is different from contribution crowdfunding, and why this matters to entrepreneurs.
Contribution crowdfunding is what we have now. Many people can legally-speaking gift money to a project or startup and get a perk, favor, or good feeling in return. This by itself has a lot of momentum. Launcht.com got 37 businesses funded on it’s first platform in the fall of 2011. Artistic project crowdfunding site Kickstarter hosted a project that yesterday finished it’s $3.3M crowdfunding campaign to develop one new computer game.
However, it has been hard to completely make the leap from funding artistic projects to funding legitimate business startups because when funding a startup, most people expect to invest and expect a return on their investment. As an entrepreneur, it is wildly illegal to publicly offer this type of investment in your startup without burdensome and very expensive filings with the Securities and Exchange Commission.
Enter Equity Crowdfunding; this is a lightly regulated funding mechanism that leverages the transparency and reach of the internet to open up investment in worthwhile startups to anyone. It takes the principles of crowdfunding and makes the transaction an investment instead of a gift. It has been championed by many in the startup community as a legitimate driver of job growth and larger economic growth. The common sense notion gained traction in the House of Representatives in early September, 2011. A version of the resulting legislation cleared the House with a 407-17 vote that got it to the Senate in mid November, 2011. Since then its traction and momentum have vacillated in the Senate. Equity crowdfunding legislation is currently enjoying an upswing; it’s time has come.
Yesterday evening’s introduction of the first bi-partisan Senate crowdfunding bill (S. 2190) is a big step forward in our fight to get equity crowdfunding passed through Congress. Launcht CEO Freeman White has been to Washington DC seven times since mid November discussing equity crowdfunding legislation directly with key Senate offices. His efforts added to those of many have had an impact on the larger movement to legalize equity crowdfunding. The offices of the Senators on the Banking Committee that is reviewing the legislation have been very receptive to input from the entrepreneurial community and have adopted many of our suggestions in the latest bill.
This latest bill, the CrowdFund Act, is important because, unlike previous bills, for the first time we have a Senate bill with bipartisan sponsorship, a balance of state oversight and federal uniformity, industry standard investor protections, and workable funding caps. This bill has a legitimate chance at quieting those who were previously trumping up fears of fraud/bad actors as well as the various state oversight concerns. To date the main issues the opposition raised were regarding fraud and state oversight of our new industry. While the opposition is mainly from those protecting the interests of large banks, an earlier House Bill and two partisan Senate bills did little to address the legitimate concerns raised by the opposition. As a compromise, this bill has a real chance at becoming law.
If you would like to learn more about the specifics of the legislation, check out our more in depth post from earlier today. We look forward to your comments and stay tuned for more from us on this important topic.