Click to PrintPosted by Catherine Clifford | May 11, 2012URL:http://www.entrepreneur.com/blog/223551
The U.S. Securities and Exchange Commission has the delicate task of writing guidelines for the next generation ofcrowdfunding, so that investors are protected and yet preserving its benefits to companies seeking toraise money.
Crowdfundinghas been mostly restricted to artists and business owners accepting small donations in exchange forthings like tote bags and CDs. Butthe JOBS Act, signed last month, will let entrepreneurs sell pieces of their business(equity) to non-accredited investors via crowdfunding. The SEC is expected to release its guidelines early next year.The crowdfunding industry has its own recommendations for keeping investors safe without handicappingentrepreneurs. Here's awish-list from RocketHub, a crowdfunding platform which counts small-business owners as itsfastest-growing group of customers and plans to roll out an equity-based product in 2013 (contingent on the final SECregulations).
Related:Bank Lending to Small Business Slips, Crowdfunding on the Rise1. Look at more than just credit scores when vetting business owners.
A primary criticism of selling equity viacrowdfunding is that it could open the door to scammers. Therefore, business owners would need to undergobackground checks. But one concern is that ultra-rigorous requirements could stifle the industry. For example, don'trequire a business owner to have a super-high credit score to be eligible. A student fresh out of college likely hasn’thad much time to build up a credit score, but he or she might have the makings of a star-studded entrepreneur. “Lookat this fundraising as what it is: the ability for folks who are underserved by the traditional funding arms to usecrowdfunding as their funding solution,” says Meece.
2. No plastic.
An investor should not be able to buy a share of a company with a credit card. They allow an eagerinvestor to inadvertently get in over his or her head.
Related:Crowdfunding's Wild West Awaits a Stampede
Shaping Crowdfunding 2.0Blog | Daily Dose | Entrepreneur.comhttp://www.entrepreneur.com/blog/printthis/2235511 of 25/12/2012 7:32 AM