The Rebel Venture Fund had the opportunity to participate in the 5th Annual Global Crowdfunding Convention, an annual event for entrepreneurs and investors to network as they discuss topics in the crowdfunding industry. One of the main takeaways for me, was my introduction to equity crowdfunding.
Equity Crowdfunding allows investors to buy securities of private companies through online platforms. However, entrepreneurs who seek to fundraise through equity crowdfunding platforms are subject to heavy regulation.
For companies who wish to raise money through an equity crowdfunding platform, they are confronted with a problem; by selling securities on an online platform, they become subject to federal security laws. The Securities Act of 1933 requires that offerings and sales of securities to the public must file a registration statement that meet SEC disclosure rules.
To alleviate some of the issues with equity crowdfunding, Title III as part of the Jumpstart Our Business Startups (JOBS) Act of 2012 was made effective May 16, 2016. Title III provides an exemption from the registration requirements of the 1933 Securities Act. Companies that wish to participate under this exemption must do so using only one online platform and are limited to a maximum aggregate amount of $1 million in a 12-month period.
Equity crowdfunding (with and without the exemption) as it currently stands will require startups to employ a securities lawyer to navigate through the regulations to ensure that they are, and remain, in compliance with federal securities regulations. In addition to a securities lawyer, an independent public accountant will be needed to review the the company's financial statements if they are a first time issuer and audited if they are not.
The costs associated with an equity crowdfunding campaign create a barrier for startups who wish to participate. The opportunity cost from choosing to go with the “crowd” versus 3-4 accredited and experienced investors is immeasurable. I look forward to next year’s Global Crowdfunding Convention to see if I can catch up with any entrepreneurs who have been successful using this platform.
ABOUT THE AUTHOR
Nadege Barthelmy is a First Generation student who is a Floridian of Haitian descent. Currently, she is completing her undergraduate degree in Accounting at UNLV. She will continue her education by obtaining her Masters of Science in Accounting. Her aspiration upon graduation includes receiving her CPA designation, working in public accounting and eventually opening up her own accounting firm.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of RVF or UNLV. In addition, thoughts and opinions are subject to change and this article is intended to provide an opinion of the author at the time of writing this article. All data and information is for informational purposes only.