General solicitation ban has been in place for 80 years
WASHINGTON (July 12, 2013) — Crowdfunding, a favorite of startups, got what observers believe is a boost this week when the Securities and Exchange Commission on Wednesday lifted the 80-year-old ban on general solicitation. The change allows hedge funds, private equity funds and startups to openly advertise that they’re raising money through private offerings.
Crowdfund investing, or CFI, is a new vehicle in “marketplace” investing that capitalizes on the accessibility of the Internet to connect small businesses and potential investors. It allows investors to help fund start-up projects in exchange for an early prototype product or other merchandise-based “rewards.”
Lifting the advertising ban is in direct accordance with the Jumpstart Our Business Startups Act (JOBS Act), passed by Congress in April 2012.
The ruling, which will take effect in the next 60 days, should make it easier for startups and privately held companies to raise money without having to comply immediately with SEC reporting rules. And now, with the ability to advertise, these entities are more likely to attract yet more accredited investors to the table.
“We’re happy to see this because it means startups will be able to raise money much more easily – and rightfully so,” said Kent Oyler, managing director of OPM Financial in Louisville and a Kentucky-based serial entrepreneur. “One of the main reasons very promising startups fail is due to lack of funds. That’s terribly unfortunate not just for the entrepreneur but for our society as a whole.”
Oyler also chairs the Commonwealth Crowdfunding Committee, a statewide initiative to educate and engage individuals and entrepreneurs in crowdfunding.
“And while the opportunity to invest is still, at this time, limited to the country’s 715,000 accredited investors,” Oyler adds. “This ruling is certainly a step forward in opening the investing playing field to nearly 250 million other qualified Americans, as per the JOBS Act.”
The SEC’s decision must be published in the Federal Register and be open for a 60-day public comment period before it goes into effect.
More information is available on the SEC website.