Viewpoint: Why Equity Crowdfunding Could Be Dangerous for Investors and Entrepreneurs
Monday, May 9, 2016
The new rules are well-meaning, but flawed.
In the very near future, equity crowdfunding will no longer be reserved for the ultra-wealthy.
That’s thanks to the Securities and Exchange Commission passage of Title III JOBS Act, which goes into effect May 16. It’s a turning point for entrepreneurs and investors alike. Before that date, only accredited investors — individuals with a net worth of more than $1 million or annual income of more than $200,000 — could take an equity stake in a private company via crowdfunding. After May 16, anyone can participate.
Exciting, right? Entrepreneurs get a new way to access capital, and ordinary investors get the chance to take an equity stake in a potentially high-growth private company. It’s a win-win!
Not so fast. Unfortunately, the final regulations surrounding Title III pose significant problems for both investors and founders.