An In Depth Q&A on the SEC’s Equity Crowdfunding Rules With Bankless Times

Close-shot of a tablet computer displaying financial data, three businessmen standing in the background

Bankless Times is one of my favorite online publications. I did an in-depth interview with them on some of the lesser-known provisions from the 686 pages of SEC rules just released for Title III equity crowdfunding.

A few highlights, followed by the link:

“There are 686 pages of SEC rules for this nine-page law, so you can imagine there are some hidden gems in there. The good news is, the SEC took away the audit requirement for first time users of the law, so now anyone using equity crowdfunding to raise from $100,000 to $1 million only needs “reviewed” financials, which is far less costly.”

“For people who think this will be just like pre-selling a new smart watch on Kickstarter, they will have some surprises coming. Equity crowdfunding involves the sale of securities. There are state and federal laws to comply with, and bad things can happen to people who ignore those laws. By bad things, I mean lawsuits and even possibly jail time, if you do this wrong.”

“Surprisingly to most, I think people will find that the legal and accounting costs will be minor compared to the one crowdfunding expense very few people talk about: marketing. Why do less than four percent of successful Kickstarter campaigns raise more than $100,000? Because very few spend the marketing dollars to make a crowdfunding campaign work.”

“While the SEC rules allow social media marketing of equity crowdfunding campaigns, the rules place handcuffs on businesses by limiting social media marketing of the crowdfunding campaign mostly to basic information like the name and address of the company, terms of the offering, a link to the campaign, and other details that will not likely be widely shared online. Limiting companies to market with boring “tombstone ads” will hamper the viral nature of crowdfunding from taking effect.”

“One big surprise to me was that the SEC actually tightened the amount of money anyone can invest in an equity crowdfunding campaign. Less money to invest means less money for the small business that is crowdfunding. What surprised me the most is that this limit applies to accredited investors also! Accredited investors can invest unlimited amounts in any other private offering of stock, but they are limited to invest a small percentage of their income or net worth in crowdfunded securities.”

“And while we are on the topic, why is the government telling anyone how much they can invest, when these same potential investors have no government limits on how much they can gamble in a casino, how much fantasy football they can wager on, or how many lottery tickets they can buy.”

To read the entire article, here is the link:

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