Crowdfunding Lawyers Split on JOBS Act and SEC’s Promise For Equity in Crowdfunding


More than two years ago, Congress passed a law that held “promise to open a new world of funding for startup businesses through equity crowdfunding,” but the JOBS Act of 2012 isn’t unanimously supported by securities attorneys or advocates of crowdfunding in general. This article in Entrepreneur provides some insightful perspectives on how crowdfunding lawyers see the opportunity to raise capital by selling stock online through “a Kickstarter-like tool,” while others are skeptical, as this article in Slate Magazine illustrates.

Whether there is frustration or a sense of impending doom over the fact that the Securities and Exchange Commission hasn’t released the final rules for JOBS Act equity crowdfunding is obviously debatable, but most everyone agrees that this would be “The biggest change in securities law in eight decades,” making the task of regulation and management of the whole ordeal a commensurately big deal – 585 pages worth of proposed rules sort of a deal. And while some crowdfunding lawyers are vocally arguing “that the SEC should roll the law out, see how it works, and let the collective ingenuity of the American people find creative ways to make the law function as congress intended,” others call it an economic “disaster waiting to happen.”

So which is it? Business lawyers in Texas familiar with the revolutionary idea in investing like Douglas J. Shumway say that caution is warranted, but that name-calling and end-of-the-economy-predictions aren’t exactly helpful in testing innovative ideas. Language like Slate’s calling “usually sober-minded social media” nothing more than “a stoned sophomore” only serves to inject nervous jitters into the market—which is never a good thing to have when making financial decisions. Interestingly, Slate Magazine is usually a liberal and progressive media outlet, but in the story focusing on the potential changes in securities regulations, it tends to sound more like a Fox News story reporting on Obamacare: full of doom and gloom and entrenched fears rather than healthy skepticism.

Most crowdfunding lawyers like Shumway would acknowledge that crowdfunding is “a very expensive and risky way to raise capital,” as Slate claims, but innovation in the market can only come from taking risks, and some businesses are more than willing to chance it for the potential of “very healthy returns.” There’s certainly a lot of hype floating around the web and even in crowdfunding conferences like the Global Crowdfunding Convention and Bootcamp hosted in Las Vegas next month, and even though there is probably a certain amount of over-hype, several crowdfunding lawyers are likely to agree with the sentiment that equity crowdfunding is poised to “change the American economy.”

If successful, the venture would bring investors to entrepreneurs in a way that has the ability to grow local businesses more quickly and democratically, bringing in “more loyal customers” and roots within a community. It doesn’t necessarily signify that the business is “desperate,” but interested parties should keep in mind that there are likely to be hitches and unexpected challenges in the first several months (or years) of the project, but only trying it will tell the American public whether it will work.

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