“These proposals will help entrepreneurs raise the capital they need to put Americans back to work and create an economy that’s built to last,” said President Obama in a statement released in early April, in reference to a bill he signed the same day that would allow any member of the public with an internet connection to invest in a non-public startup company using social media and “crowdfunding websites.”
In practice, the legislation seeks to allow users to trade their dollars for equity, or shares, in the non-public companies, potentially helping non-savvy investors get in on the next Facebook before it goes public and its shares sour.
That would be a marked change from the way investing in non-public companies is currently handled in the United States, restricted by law to only “accredited” investors, namely wealthy individuals, investment banks, and those involved in the company itself. The idea that anyone would be allowed to freely invest his earnings into a company with no proven revenue stream or public earnings documentation led some finance writers to opine that the new legislation would lead to widespread fraud.
But the Jumpstart Our Business Startups, or JOBS Act, which passed Congress with enormous bipartisan support before reaching the president’s desk, is currently being reviewed by the Securities Exchange Commission, which has another 250 days to look-over the legislation and impose regulations on its actual implementation, before it becomes law.
The early indications of how many regulations the SEC may impose are murky, leading one website that said it would be ready to offer a “one-stop-shop” for users to “crowdfund” startup companies once the JOBS Act was implemented, to change course.
“There’s a lot of work to be done to make sure that the SEC is putting down rules that will protect investors and users, but will also help the funding portals operate,” said Tanya Prive, co-founder of Rock the Post, in a telephone interview with TPM.
As a consequence, Rock the Post, which spent its first half-year of existence building a funding portal that would take advantage of the new opportunity created by JOBS Act, on Monday launched a different version of its existing website that does not promise to offer would-be investors any way to get in on the startup action.
Instead, Rock the Post now resembles more of the growing crop of existing crowdfunding websites, many based off of the successful Kickstarter, which allow aspiring creative types to post ideas for projects and solicit donations from Web users in exchange for copies of the resulting project or other small “gifts.”
That said, Rock the Post aims to differentiate itself from other crowdfunding portals by focusing “exclusively on small businesses, entrepreneurs and non-profit organizations” and offering “the best customer service” for users who post projects on the website.
“The beauty is now we’re going to be able to see what’s happening and give the best customer service out there,” said Rock The Post co-founder Alejandro Cremades, who was also on the call to TPM. “Some people think that by using a crowdfuning website, posting their idea, they’ll automatically get people to donate. But the creators are responsible for making it easy for people to jump in, and we’re here to help them do that.”
Rock the Post, a New York City-based startup company in its own right, launched a beta website in November 2011 that offered a rudimentary crowdfunding platform, but the redesign launched Monday is the “full” launch, according to its co-founders, complete with better graphics and more elegant tools.
Prive said that the original design of the website, which would have allowed users to invest in a company in exchange for shares, had not been scrapped entirely.
“We’re still interested in the JOBS Act, and extremely excited,” Prive said. “But we’re still waiting to see what will happen, how the SEC will decide the lay of the land.”
Prive also told TPM that Rock the Post and other crowdfunding websites been in discussions with the SEC and the White House about their concerns that over-regulation of the JOBS Act could “kill” the very opportunity that it was designed to create.
“The bill covers a lot of things,” Prive added, “When you go through it, you realize there are a lot of gray areas that were left up to the SEC. So now that the initial excitement about it has faded, it’s time to get to work…and it is very important that we take the time to carefully iron everything out.”
The SEC is still soliciting comments from the public on how it should implement and regulate the JOBS Act on its website. Initial comments have already been posted as well.
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