Saturday, February 25, 2012
by Kevin Lawton
In the next few months, I predict a U.S. presidential candidate will fullyendorse crowdfunding. And that endorsement will earn the candidatemillions of votes, and a tremendous amount of the network effect thatcrowdfunding participants are so versed at. Why? Just for starters,Kickstarterexpects to provide more funding than the National
Endowment of the Arts! Even as VCs aremassively abandoning seedfunding,crowdfunding and peer to peer lending have become a globalmulti-billion dollar power house.In November of 2011, The U.S. House of Representativespassed acrowdfunding bill , with overwhelming support. By most accounts, thebill was friendly to crowdfunding and cut out much of the red tape thatusually accompanies financial bills, thanks in large part to its author,Congressman Patrick McHenry. It
creates “a crowdfunding exemption
from SEC regulations for firms raising up to $2 million, with individual
investments limited to $10,000 or 10 percent of an investor’s annualincome.”
And as a bonus, exempted crowdfunding investors from the500 investor limit before public company reporting kicks in.
But then the special interests awoke. In the Senate, two related bills
were introduced, one from Senator Scott Brown (“
”) and one from Senator Merkley (“
”).
Unfortunately, the Senate hearings and concurrent media
postings were best characterized as the “Keep American EntrepreneursDown by Continued FUD Act of 2011”, and the resulting bills watered
down almost to the point of futility. Currently, passage of acrowdfunding bill isstuck in the Senate,with no apparent time frame
for progress. You can see a quick visual snapshot of thevariousproposals here. As you can see in the last link, the proposal from the North AmericanSecurities Administrators Association (NASAA) has the weakestproposal, with an embarrassingly out-of-touch maximum of $500K. Yet just recently,Kickstarter got its 3rd $1M project in the span of twoweeks (Double Fine is over $2M alone!). Reality check, crowdfunding is
already a market measured globally in billions of dollars, and how manycases of fraud have you heard about? You know why there is so littlefraud? Because transparency is the best mechanism free markets haveto offer for fraud prevention. Take for example the attemptedcrowdfunding project, theTech-Sync Power System.After tech-savvy
people in the project's chat forum scrutinized the technology, theproject was canceled before the funding period completed. Who wouldhave thought, we don't need government and intermediaries to
“protect us”?
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