New SEC Crowdfunding Rules – What They Mean for the Freelance Economy
Last month, the SEC issued its final Crowdfunding regulation under Title III of the JOBS Act. The purpose is to allow non accredited investors the ability to make equity investments in startups, a privilege which was once reserved for the elite few (those investors who could meet the traditionally stiff asset & liquidity standards). Several sticky issues were faced by the SEC in seeking to protect small investors while opening up new capital markets to small entrepreneurs and startups in our increasingly freelance economy.
This included things like whether broker/dealers could join the game. Many argued this was about crowdfunding, and pros should be kept out of it. But like it or not, pros bring most of the VC money to the table. This was not a trivial issue. Under the final rules, an intermediary can accept equity compensation, with two provisos: it must be the same type of equity as is received by the crowd, and the equity can only be given as compensation for the intermediary’s services. As any good VC knows, equity compensation could be the difference between the portal turning a profit in the long term – or not. Now, everyone can play – and on a presumably level playing field.
Another was the audit requirement. In the end, the SEC waived audits for initial raises without a ceiling limit – but they’ll be required for second raises. And a formal review is still required for all raises of $100,000 or more.
Now that all these sticky issues are finally resolved, there are still a lot of hoops to jump through. As Samuel Guzik put it, this is not your daughter’s Kickstarter campaign. There is still a lot of registration paperwork to file and requirements to meet, but there’s already an industry forming around ways to get your business funded under the new crowdfunding rule. Besides consultants and attorneys, some clever entrepreneurs are already building crowdfunding platforms with built-in compliance engines to make it easy to list your project. One example is EnergyFunders, giving ordinary investors an opportunity to invest in oil and gas investments for the first time. And this is barely two weeks into issuance of the final regulation.
Those are just a couple of examples of how this new SEC crowdfunding rule is jet propelling the new freelance economy. A bigger impact may be felt by how many new startups could result. Startups almost always hire freelancers and contract workers to build their companies, so the ripple effect will be gigantic as newly funded startups spend some of that raised capital on hiring and contracting.
Our platform, Graphite, is already a solid player in the freelance, contracting and staffing space for the kind of highly specialized niche talent you’d need to navigate successfully through this brave new world of equity investor crowdfunding. Need one of those formal reviews performed? Once you have a User ID on our site, you can browse our talent and find lots of qualified candidates. Or if you’ve already got a startup ready to roll but still looking to add a qualified CFO to your team, go ahead and post a role and let candidates start coming to you. Either way, we’ve made it a fast and painless process.
We would like to formally thank the SEC for its diligence in issuing this new rule, and we’re keeping our fingers crossed that it works out well for everyone concerned.