Bennet Introduces Bipartisan "Crowdfunding"? Bill to Allow Small Businesses and Start-Ups to Raise Capital Online and Through Social Media

Colorado U.S. Senator Michael Bennet, along with Senators Jeff Merkley (D-OR), Scott Brown (R-MA) and Mary Landrieu (D-LA) today introduced a bipartisan bill to help expand investments in Colorado small businesses and start ups.

The Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure (“CROWDFUND”) Act would allow small businesses and start-up companies to raise capital from individual investors online and through social media. It is often more difficult for small businesses, young businesses and start-ups to secure capital than it is for larger companies.

“These proposals will help inject capital into small businesses and start-ups in Colorado and throughout the country and harness potential small investors who otherwise would not have the infrastructure to invest in these smaller companies,” said Bennet. “We can help drive innovation, promote job growth and support small businesses, the backbone of our economy, in a way we have not seen before by bringing our securities regulations into the 21st century.”

Crowdfunding would work like the website Kickstarter, which relies on bunches of relatively small dollar participants for their success.  Kickstarter, which supports artists, disburses funds for a given project only once all necessary funding has been secured. In crowdfunding for business investment, a start-up venture would publish information on its proposed business and invite potential small investors to offer capital. Once pledges for a project reach a predetermined threshold, the deal would move forward.

During a Senate Banking Committee hearing that Bennet chaired on capital formation proposals, Tim Rowe, founder and CEO of Cambridge Innovation Center, said that last year Kickstarter raised about half as much for the arts as the entire National Endowment for the Arts, demonstrating the great potential of crowdfunding.

Normally, when a company seeks financing from the public it must register with the Securities and Exchange Commission, providing detailed disclosures. This bill would provide an alternative to this process, allowing companies to raise up to $1,000,000 annually through crowdfunding on registered internet websites.

The bill would also implement basic marketplace protections for the ordinary investors seeking to take advantage of this new marketplace.  Web sites seeking to list companies must register with the regulators and provide investors the basic information about the companies they list. Crowdfunding companies themselves must provide basic disclosures to investors and regulators.