The SEC May Clear the Way for the Next Facebook to Find Funding On Facebook

If you have an idea for the next Facebook and are thinking of turning to crowd funding to get things started, under current Securities and Exchange Commission rules you’d actually run into lots of big problems for all those small issues of shares. It’s part of the reason platforms like Kickstarter don’t give supporters actual shares or ownership in projects. Good news though, the SEC is considering relaxing the rules around crowd funding to make actual investment less onerous for companies who’d prefer to take small amounts of funding from lots of investors (rather than large amounts of funding from individual investors). {WSJ via VentureBeat}

Fashion startups have been able to make crowd funding work largely through pre-orders, rather than actual investments, and Kickstarter’s most successful project to date was largely based on providing a platform for a large demand of pre-orders on a product. So while it’s always good to see a government body keeping pace with the times, we have to wonder if a startup without a physical product would actually be able to find enough investors to make crowdfunding a viable alternative to angel or professional investors.

The SEC is still in the early stages of considering any rule changes, and the chance of fraud is a big reason. While individual investments might be limited to $100, or something relatively small and unlikely to cause severe financial damage to crowd funders, there’s also some caution surrounding easing regulations given how easy it is for scams to spread online.

It’s not so far out there to think that “we’re creating the next Google, and for only $100 you can become a millionaire!” emails would start to replace those from deposed dictators who offer millions if you’ll only cash a large check for them and wire the balance.

 






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