The Morning Ledger: Crowdfunding Plan Could Spur Startups

Source: Wall Street Journal

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Startups are set to reap big benefits from new rules on “crowdfunding.” The SEC voted to propose rules that would let startups and small businesses raise up to $1 million in equity capital from ordinary investors. Slava Rubin, CEO of crowdfunding site Indiegogo, tells the WSJ that the rules could “create a whole new wave of users for online fundraisers.” The proposal, spurred by the JOBS Act, marks a shift for the agency’s role of mandating that companies adhere to an extensive disclosure regimen before selling shares publicly, the Journal notes. Companies using crowdfunding still will face oversight but will have the chance to pitch their business ideas to investors based on relatively limited disclosure. “We want this market to thrive, in a safe manner for investors,” SEC Chairman Mary Jo White said.

Crowdfunding companies wouldn’t have to file the typical annual 10-K and quarterly 10-Q reports that are expected of public companies, CFOJ’s Emily Chasan reports. But the proposed disclosures and smaller reports for crowdfunding investors could be a watershed moment for private companies, which haven’t had to disclose much information to investors in the past. To take advantage of crowdfunding, companies would have to regularly file certain information with U.S. markets regulators, provide it to their investors and the platform or “online portal” facilitating their offering, according to the proposal.

“It’s the first time that the commission has proposed some ongoing reporting requirement that’s something less than SEC reporting,” Anna Pinedo, a securities attorney at law firm Morrison & Foerster, tells Chasan. “Some startup companies might be taken a little aback by the fact that they’ll have this annual filing burden, but from an investor-protection perspective there has to be some sort of sense of transparency for those investors who participate in this.”

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