A new law announced to help US start-ups raise cash could have a knock-on effect on the equity crowdfunding scene in the country.
The legislation states that anyone – providing they have assets worth less than $1m and have earned more than $200,000 over the previous two years – can buy equity in start-up companies, bypassing the need for those companies to launch traditional equity-based or rewards-based crowdfunding campaigns.
It means anyone will now be able to invest in companies they believe in and they think will bring them reasonable returns, whether they are experienced investors or just want to have a go at alternative investments.
However, small companies are only able to raise up to $1m a year using this method, which may, of course, lead to some still using crowdfunding to raise a higher amount on funding. Additionally, it wll be closely monitored, with investors using specially set up marketplaces enabling them to support early-stage businesses.
“Raising money online remains a securities transaction, and you need to be responsible in how you sell your securities to investors,” Corporate and securities attorney Doug Ellenoff told Business News Daily. “And they need to make sure they work with qualified professionals to do it in an informed way that won’t harm investors.”
“It’s a real revolutionary change in securities law. Consequently, the proposed rules that need to be fashioned by SEC (US Securities and Exchange Commission)…are complex and not obvious,” Ellenoff added.
The US equity crowdfunding market is somewhat less mature than the UK equity crowdfunding scene, although that could be set to change with Seedrs setting its sights on launching in the country.
The incoming law is likely to come into force later this year and we’ll be monitoring it closely to see if and how it will impact the US crowdfunding industry.
Main image of US Securities and Exchange Commission source: Flickr