Colorado U.S. Senator Michael Bennet today conveyed to the U.S. Securities and Exchange Commission (SEC) feedback he has received from Coloradans on the crowdfunding provision he authored in the JOBS Act that was signed into law in April. The SEC is preparing to draft regulations on crowdfunding.
In a letter to Mary Schapiro, chairwoman of the SEC, Bennet described the feedback that he has received from entrepreneurs, angel investors, venture capitalists, securities lawyers, and funding portal developers through the workshops he held across Colorado.
“Crowdfunding is an important way to harness vast investment capital available online and encourage investments in small businesses and start-ups in Colorado and across the country,” Bennet said. “The SEC needs to carefully craft a set of rules that will allow businesses to generate the capital they need to grow, while minimizing the risk as much as possible to both investors and business owners. It is my hope that the SEC will take into account this feedback I have received from Coloradans when it writes these new rules.”
“Access to capital is one of the greatest barriers to innovation our entrepreneurs face,” stated Doug Johnson, Vice President for the Rocky Mountain Innosphere, a technology incubator in Fort Collins, Colorado. “Crowdfunding is a valuable way for the community to engage with and invest in local technology breakthroughs and is another needed source in the capital toolbox for us to access. “
The crowdfunding provision allows small businesses and start-ups to raise capital online and through social media. Currently, an internet-based intermediary cannot facilitate a transaction offering investors an equity interest in a company without registering with the SEC as a broker-dealer, which encompasses capital and compliance requirements that may not be appropriate given the size and scale of crowdfunding. This provision will provide an alternative to this process, allowing companies to raise up to $1 million annually through crowdfunding on registered websites.
Full Text of the Letter:
Dear Chairman Schapiro:
As the SEC prepares its proposed rules on crowdfunding, I write to convey some of the feedback on the statute that I have received in Colorado.
Since the passage of the JOBS Act, my staff and I have been meeting with entrepreneurs, angel investors, securities lawyers and funding portal developers in Colorado to obtain their opinions on implementing the crowdfunding provisions of the statute. Their comments reflect a diversity of viewpoints that should be particularly helpful to the Commission as it works to implement the new crowdfunding law.
In crafting the statute, we sought to scale the reporting requirements so that they would not pose an undue burden on small businesses. Many of the individuals with whom we met believed that if the reporting requirements become too onerous, an offering for a small business may become cost-prohibitive. The Commission, therefore, should appropriately scale the reporting obligations as it promulgates the proposed rules.
Many of the individuals with whom we met underscored the importance of addressing the ownership structure of crowdfunded entities and how the structure may affect subsequent investors. The participants expressed that businesses must be transparent about their capital structure before participating in a crowdfunded offering.
Lastly, businesses and potential investors agreed that they will be looking to the crowdfunding portals to be one of the primary sources for information and guidance on how to comply with the SEC’s rules and regulations. The SEC should therefore allow the portals to provide accessible and understandable information for both investors and small businesses.
Thank you in advance for your consideration.
Michael F. Bennet