Well, this just in from a dispatch on Capitol Hill: The Senate has passed legislation that will essentially legalize crowdfunding in startups by practically anyone, even your mom. U.S. Senators Scott Brown (R-Mass.), Jeff Merkley (D-Oreg.), and Michael Bennet (D-Colo.) collectively introduced the “CROWDFUND Act” (S. 2190) earlier this month, which adds measures to the House of Rep’s now well-known JOBS Act to ensure that companies would be able to use SEC-approved crowdfunding platforms to raise money from “small-dollar investors.”
While the CROWDFUND Act passed 73-26, and received bipartisan support, as one might expect when the potential for any old investor to enter the well-guarded circle of angel investing (especially in Silicon Valley) comes around, both the JOBS Act and the CROWDFUND Act have been controversial in the business community. Many worry that lowering the barriers to investing in startups could increase the amount of fraud inherent to the process.
With these dangers in mind, certain measures have been written into the bill to protect both startups and their non-accredit investors. Under the amended legislation, entrepreneurs will be able to raise up to $1 million per year through SEC-registered crowdfunding portals. The bill also limits the amount of money people can invest based on their income.
For example, investors with an income of less than $100K will be capped at 5 percent, or $2K investments, and those with incomes over $100K will be capped at 10 percent, or $10K. On top of that, the bill also requires crowdfunding sites to provide protection, including investor education materials that inform people to “the risks associated with small issuers and illiquidity.”