Thursday, December 27, 2012

SEC Discourages Crowdfunding

I'm a big fan of, a way for entrepreneurs to get funding for their projects without giving the store to venture capitalists. As shown in this earlier post, the companies promise early product at a discount to customers who advance the money needed to make the product.

The next logical step is what's known as 'Crowdfunding.' Thousands of small investors will pledge small amounts of money in exchange for stock in a small company. is another example of a company who want to get into the business. Rather than get an investment bank involved with their millions in fees and huge profits for their early IPO investors, the company would offer shares to ordinary people like you and me without the middleman. A typical Internet phenomenon.

'Not so fast,' said the Securities and Exchange Commission. Back in April they pledged to draft rules for this source of funding but 270 days later, the year looks like it will end without the rules being put in place.

Granted, there should be rules in place to protect investors and companies from unscrupulous people and plain mistakes but really? 270 days? Sounds like typical government mismanagement to me.

The Times had a good article about this in today's paper. In it, one of the advocated of crowdfunding makes a good quote: He urged regulators to tread lightly. “There’s a lot to do here, but why not let the industry figure it out?” he said. “Along the way there will be some ups and downs, but in the long run, like the Internet, we’ll have created an amazing industry.”

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