Non-accredited investors interested in investing in young companies and entrepreneurs hoping to use the internet to raise money for their startups are one step closer to their dreams today after the United States Senate passed the Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act, also known as the CROWDFUND Act.
The Act is the Senate's version of similar legislation that had already passed in the US House of Representatives and once reconciled, a final bill can be sent to president Barack Obama to be signed into law.
With bipartisan support for crowdfunding, it appears likely that the reconciliation process will proceed relatively smoothly. There are, however, some key differences between the Senate and House versions of the crowdfunding legislation.
As Crowdsourcing.org explains, amendments have been brought up that would seek to provide greater protections for investors. Under the House legislation, for instance, companies seeking to raise money would not need to disclose financial information and would not be responsible for inaccuracies in the information they do provide. The amendments proposed in the Senate would require financial disclosures with, at a minimum, certifications from company CEOs, and startups would have some liability for inaccuracies in their disclosures.
Those concerned about fraud believe these kinds of rules will help safeguard investors; skeptics of additional regulation contend that these rules won't really provide greater protection to investors and will create the same kinds of barriers that currently making raising money so difficult for young companies.
Either way, crowdfunding, in whatever form is eventually permitted, will be a great experiment, even if it's unlikely to be as revolutionary as some hope.
Not surprisingly, companies are lining up to capitalize on the new market. One, Crowdfunder, says it has over $13m in commitments from would-be investors waiting for the legal green light to put their money into startups. That's good news for startup entrepreneurs, some of whom may soon be able to tick the checkbox next to "Raise capital" on their to-do lists shortly after they can turn to the crowd for cash.