2,349 crowdsourcing and crowdfunding sites
The U.S. House of Representatives today passed a bill to legalize crowdfunding — originally introduced by Rep. Patrick McHenry (R-NC) — for the second time.
McHenry's "Entrepreneur Access to Capital Act" passed the House by an overwhelming bi-partisan margin back in November of 2011. The bill then stalled in the Senate while two competing bills with far more restrictive limits on investment were also introduced.
After three months in legislative stasis, McHenry's bill was rolled into a broader package of capital access bills dubbed the Jumpstart Our Business Startups "JOBS" Act. Many of the bills included in the JOBS package had been previously passed by the House. Today the full JOBS Act, including the Enterprenuer Access to Capital Act, passed on the House floor by a wide margin of 390 to 23.
“Crowdfunding is a key component of the JOBS Act,” McHenry said in a statement today. “Economists predict the legislation will lead to a ten percent increase in new business startups, helping to create at least 170,000 jobs in the next five years. This bill is critical in getting our economy back on the right track.”
McHenry's bill provides a crowdfunding exemption to SEC registration requirements for firms raising up to $2 million, with individual investments limited to $10,000 or 10 percent of an investor’s income. The legislation also erases limits on the number of investors that can participate in crowdfunding, extending investment opportunities to everyday investors that are currently not an option under SEC regulation.
"Two times is better than one," Sherwood Niess of the Startup Exemption — a group that developed the regulatory framework behind the crowdfunding bill — told Crowdsourcing.org. "We are thrilled the House and President understand the need for capital to help kickstart the nation's enterprenuers."
Crowdsourcing.org founder Carl Esposti concurred, adding that allowing crowdfunding as a new model for capital formation for start-ups and small businesses will lift the entrepreneurial spirit in America to new heights.
"Current crowdfunding models in the U.S. create more start-up opportunity where people can donate to support a good idea, but for people to invest in helping business grow, equity based models are needed," said Esposti. "Job creation doesn’t come from start-ups, but from small businesses growing."
The vote in the House moves the JOBS package to the Senate, providing the slower, more deliberative chamber yet another starting point to officially open the debate on crowdfunding. None of the bills have yet to move out of any Senate committees, although the Banking Committee did hold another hearing on crowdfunding earlier this week.
"(The passage of the JOBS Act) sends yet another message to the Senate that this is a critical need for small business owners and entrepreneurs and now is the time to act," Karen Kerrigan, executive director of the Small Business and Entrepreneurship council, told Crowdsourcing.org over the phone following the bill's passage. "The clock keeps ticking, the economy is still fragile, gas prices are high and small businesses are still starved for capital — they need funding opportunities and solutions right now."
The two other crowdfunding bills — from Senators Scott Brown (R-MA) and Jeff Merkley (D-OR) — are more restrictive, with limits on individual investments that are one-tenth the amount ($1,000) allowed in McHenry's bill. The lower limits are based, in part, on concerns that crowdfunding could increase the risk of fraud, especially among lower net worth investors who would be most adversely affected by such scams.
The stage is now set for some sort of compromise between not just Republicans and Democrats, but between the two chambers themselves.
Niess told us he went to Washington recently to present legislators with compromise suggestions and a load of data backing up the less restricive framework in McHenry's bill. According to Niess, lawmakers were receptive not only to the data, but to the notion of negotiations on the differing limits in the bills.
"I'm confident the (individual investment limit) will be above $5,000, and hopefully as close to $10,000 as possible," says Niess.
He says he expects some sort of a tiered-system of investment limits that is based on investors' income or net worth.
Kerrigan shares Niess' optimism. She says her organization will continue to work to educate legislators and the public on how social media and the technology behind crowdfunding works, and "how little fraud occurs in the current crowdfunding space."
"I'm optimistic we're not going to be disappointed with the outcome," says Kerrigan.
- 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.