It’s no secret that crowdfunding is rife with concerns about fraud. Projects that get money on Kickstarter could easily abandon the project and keep the money they raised (or worse, not have a real project in mind to begin with). Enter the JOBS Act that was recently passed. It offers the opportunity for small businesses to solicit the general public for investment in their product or service. In exchange, businesses give investors an equity stake in their companies–a different animal than Kickstart’s donation-based model. This complicates securities law, which has traditionally been focused on protecting investors from fraud at the expense of accessibility (i.e. only certified investors and otherwise high net worth individuals could fund startup companies for equity). But now anyone can invest in a startup. To address this complication the JOBS Act stipulates that funding portals (like Indie GoGo or–my favorite one–Crowd BioVentures) must register with the SEC to comply with the law. If funding portals are not registered with the SEC they’re breaking the law. This much is clear. What the SEC will require for registration and how onerous the process will be is yet to be determined. The SEC is writing rules now, but it appears the process won’t exactly be a piece of cake.
So why isn’t the media reporting this? I only know the SEC has a rigorous regulatory framework in mind because I’ve done extensive research on the topic since I’m starting a funding portal. The impression the mainstream media tends to leave is that crowdfunding is a proverbial wild west and unsafe for “real” investment. Just watch the Wall Street Journal reporter below completely disregard the idea of crowdfunded investment because…eh…he’s “very nervous” about it. Not to mention this article where there’s no mention that the JOBS Act already has requirements in place for funding portals–requirements the SEC will enforce.
Rather than spooking investors about a new paradigm with the potential to reinvigorate the American economy, shouldn’t they be taking a more pro-business approach? They ought to report what crowdfunding platforms, potential investors, the SEC, and other interested parties think needs to be done to ensure investor protection and maintain the legitimacy of crowdfunding. There’s no need for spooks in a market like this, especially since everyone involved–including crowdfunding portals–seems to agree proper regulations are key to making this work. And everyone involved also seems to agree this will stimulate the economy. When’s the last time you saw Republicans and Democrats coming together like in the video below?
So while I think caution is good for anything involving securities or personal finance, I also think the media is doing a disservice to the American public by not giving proper attention to real issues and focusing on the spook factor. This isn’t about a few cases of fraud that will inevitably happen (and land people in jail, just like fraud in investment banking). It’s about putting the right regulatory framework in place to get our economy back on track. Why isn’t the discussion centered around that?