Every week we see further proof of the ability of crowd funding to get cash flowing and our economy growing. Â The SEC, however, has yet to make any changes that would make equity-based crowd funding (aka Crowd Fund Investing) legal. Â The latest proof came whenÂ Michael Migliozzi II and Brian William Flatow started a crowd funding campaign to purchase Pabst Brewing Co. They created anÂ online campaign and used the their social media channels, Facebook and Twitter, to spread the word. Â Amazingly, they were able to get 5 million people to agree to pony up $200 million!
The SEC found out about the money raise and put a stop to it. Â According to reports, Migliozzi and Flatow neglected to register the offering with the SEC. Â They also targeted unaccredited investors and did so in a public fashion. Â And 5 million people is a tad bit more than the 35 unaccredited investors the SEC currently allows under its existing exemptions.
Granted, what these gentlemen were doing was in excess but it proves a point. Â There is an interest on the part of the average American to support ideas they believe in. Â Not only that, they are willing to part with a few dollars to make it happen. Â While raising $300 million on the Internet isn’t probably the most smartest thing, allowing entrepreneurs to raise a limited about of seed or growth capital via crowdfunding platforms is.
That is what the Startup Exemption is all about. Â We have developed a framework that will allow entrepreneurs to raise up to $1 million from their community. Â The PabstÂ campaign while worthy would not be allowed under our framework because of the size. Â Our goal is to help fund the ideas that will lead to great companies and use the collaborative know-how of the crowd to not only provide financial support but critical knowledge and experience.
It is important to note that the SEC was able to easily stop this campaign because of the transparency of the media and the internet. Â The more information (aka transparency) there is out there the less chance there is for fraud. Â By design, the internet is open for all to see. Â Fraud will never beÂ eradicatedÂ but with transparency it will be greatly reduced. Â When the SEC puts our framework in place Crowd Fund Investing platforms will have safeguards to ensure the danger of fraud is kept on par with similar classes of investment.
With the interest from the masses, the time is ripe for the SEC to implement our suggested framework.