2,349 crowdsourcing and crowdfunding sites
Up until this week, I was still telling friends and family about pending legislation to legalize crowdfunding for equity in the U.S. and describing it as "a very important bill that you've probably heard nothing about." That all changed this week as the Jumpstart Our Business Startups (JOBS) Act that contains the means to legalize crowdfunding took centerstage and, along the way, became bogged down by what I can only generously refer to as typical inside the beltway bumbling.
Suddenly, people I know who might have at most a passing familiarity with Kickstarter are loudly declaring their reservations about the dangers of crowdfunding. Of course, I've yet to read of any actual scandals involving crowdfunding fraud in Europe, where equity models already exist, or on the "crowdfunding lite" platforms we have here in the U.S. like Kickstarter or IndieGoGo. We have the toxicity of our broken Congress and the 24-hour news cycle to blame for this familiar paradox.
Before this week, the JOBS Act and the provisions to legalize crowdfunding within (the bill previously known as Rep. Patrick McHenry's Entrepreneur Access to Capital Act) seemed to be on cruise control for President Obama's desk, with his support and the apparent silent assent of the Democratic Senate leadership.
The national news media had already begun to take notice when the SEC Chair Mary Schapiro put her opposition in the form of a letter to the Senate Banking Committee earlier this week. The AFL-CIO and Council of Institutional Investors also chimed in--more than enough to get the attention of Democrats in an election year and lay down some major hurdles for the JOBS Act.
Before I make a few key points about what's happened to the crowdfunding legislation this week, let's get a few disclosures out of the way. First, as a site dedicated to covering crowdsourcing, it's probably true that we're more excited about the prospects for legal crowdfunding than your average voter, and for that same reason, I'm much more concerned with the crowdfunding part of the JOBS Act than the other five access-to-capital bills that were also rolled into it by House Republicans. So far as I can tell, there's some good and some bad in the JOBS Act, and as others have pointed out, parts of the package seem to be contradictory. Third, Senate Democrats insistence on tacking on a largely unrelated credit extension for the Export-Import Bank does little more than add extra baggage to an already weighty package of bills.
In other words, this is a typically dense piece of legislation with plenty of room for nuance, but many of the critical sound bites and headlines seem to center on crowdfunding. So, with that in mind, I submit:
- Only regulators seem to be scared of crowdfunding. And perhaps for good reason. After all, regulators haven't done a very good job of regulating parts of the financial world over the last decade or so. It's easy for the SEC to put on a toughguy face and block a new crowdfunding market, especially given the absence of an army of veteran crowdfunding lobbyists and other Washington insiders.
- Show me the fraud. Please. Seriously. I've been looking for instances of fraud in Europe or on platforms like Kickstarter. It doesn't seem to exist. If Crowdfunding became more widespread, certainly there would be more potential for fraud, but platforms have been exquisite at weeding out scams, and a final version of crowdfunding legislation could well include required intermediaries to institutionalize this role. This is the kind of nuance that was conspicuously absent from much of the debate this week. Also, last I heard, there were still other laws in place that make fraud illegal.
- Startups need this. I've been involved in startups, and the current requirements for accredited investors make it quite difficult to get a new business out of the garage and on to the next level. In the United States, the one thing we continue to do well is innovate. We don't make much here anymore, but we're pretty great at coming up with new ideas. We even came up with this new idea for how to fund our new ideas, now we'll see if our government can be convinced it's a good idea.
- Eric Mack is a contributing editor for Crowdsourcing.org. He also currently contributes to CNET. In the past, his work has been featured by NPR, Wired, the New York Times and other outlets. You can contact him at firstname.lastname@example.org. Find him on Twitter and Google+. Also be sure to follow Crowdsourcing.org on Twitter.