Recent SEC Rules Pave the Way for New Kinds of Crowdfunding Sites


Recent SEC Rules Pave the Way for New Kinds of Crowdfunding Sites

In the past 5 years there’s been an explosion in the number of startups being funded through popular crowdfunding sites like Indiegogo and Kickstarter. In response to this relatively new form of funding, the Securities and Exchange Commission (SEC) has released a document of more than 600 pages containing rules and regulations that will govern how the industry operates in certain regards. One of the most important changes introduced has been the provision that allows non-accredited investors to begin holding equity in the startups they’re investing in through crowdfunding.

SEC Giving Investors Incentive to Start Crowdfunding

Previously, investors could only stand to gain a reward or prize in exchange for their donation, which typically included a copy of the startup’s product or a free trial of their service. Now investors can look forward to owning equity in the companies they’re investing in, and they don’t even have to be accredited investors. This allows virtually anyone to get involved in business investing with the prospect of a reasonable return, rather than from the perspective of an occasional hobby or passion, as has often been the case in the existing crowdfunding landscape.

Billionaire Software Developer to Launch Next Generation Crowdfunding 

In 2004 IBM bought the software company Candle for more than $600 million. The founder, Aubrey Chernick, was able to grow those funds into a current fortune of more than $1.2 billion and has since used a large portion of his funds for philanthropic endeavors. He’s even been honored with a Lifetime Legacy Award from the Children Uniting Nations (CUN) organization. As part of an effort to give back to the tech community that gave him the opportunity to succeed, Chernick will be launching a new service called Next Generation Crowdfunding, which will be among the first to operate based on the new SEC rules.

Attracting a New Kind of Investor and Higher Donations

In the past, crowdfunding has always been about investors putting money into things they’re passionate about or interested in. From that standpoint, it has been more of a hobby or passion that lets people pour a little extra money into upcoming products and startups they believe in. There has never been much of a guaranteed return for the investors or “donors.” That is set to change, however, as Next Generation Crowdfunding will give serious non-accredited investors the opportunity to begin holding equity in the startups they’re investing in. Of course, this will undoubtedly attract a larger number of serious investors who are willing to contribute more on a per-donation basis. Chernick has also been helping fund other crowdfunding endeavors such as StartEngine.

Stimulating Technological Advancement Through Crowdfunding

One could say that promoting the practice of crowdfunding in itself could be considered a philanthropic act, being that you’re furthering a type of funding that is pushing technological innovation forward. Chernick’s ambition to bring more investors into crowdfunding could be a major step towards convincing investors that crowdfunding is worth their time and money.

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I'm an eternal optimist, follow a Buddhist philosophy, geek of many areas, entrepreneur, learning the Chinese language, a die-hard sports fan, love politics and nuclear submarines.

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