More on the crowdfunding debacle

We have written about the transporting failure of the federal government actually to implement the crowdfunding provisions of the JOBS Act passed last April and signed with such fanfare by President Obama. Now Reuters has is reporting that crowdfunding sites are facing regulatory ambiguity and opposition in Europe (which, we all know, could do with a few more start-ups).

Crowdfunding has the potential to fund many great new ideas, large and small. Regulators, however, are concerned with only one possibility, that small investors might lose their money -- which is likely in any start-up -- and then complain to elected officials. This attitude crushes the spirit of enterprise, and needs to be denounced at all opportunities by happy people who prefer prosperity.

How about this? Enact crowdfunding, and simply require an unqualified statement on every crowdfunding website page, in a large font, to wit:

CROWDFUNDED BUSINESSES ARE BY THEIR NATURE VERY RISKY, AND YOU WILL PROBABLY LOSE MOST OR ALL OF YOUR INVESTMENT.

The crowdfunding mess: How delays in regulation can ruin even a good law

Sometimes, the government can take so long to issue regulations that a law that is intended to facilitate enterprise in fact frustrates it. From the current issue of Inc Magazine ("The SEC stalls entrepreneurs hoping to cash in on the JOBS Act."):

Entrepreneurs who have been waiting to take advantage of the Jumpstart Our Business Startups (or JOBS) Act may have to wait a little longer. The Securities and Exchange Commission continues to drag its heels on implementing the new law, which allows start-ups to find investors online via crowdfunding.

When Congress, in an almost unheard-of display of bipartisanship, passed the JOBS Act in April, crowdfunding seemed poised to boom. In 2011 alone, crowdfunding platforms helped raise about $1.5 billion for start-ups and other projects, according to Massolution, a research firm covering the space. Currently, the money raised on sites such as Kickstarter and Indie­gogo is characterized as donations (for which donors are often offered rewards and opportunities to preorder products). The JOBS Act allows start-ups to potentially raise a lot more money online by using crowdfunding to sell equity in their companies....

But the SEC has been slow to indicate how it will implement the law. After it missed its original July 4 deadline, the commission finally issued some proposed guidelines in late August. Many details remain sketchy, however, and the SEC may not finalize its rules until the end of the year or early 2013....

Because of this confusion, some crowdfunding sites are avoiding the new regulations altogether, at least for now. Kickstarter has said it won't change its business model to take advantage of the JOBS Act. And TheFundersClub.com, which lets people make small investments in some Y Combinator companies, is limiting its users to the wealthy accredited investors who were able to invest before the JOBS Act passed. (emphasis added)

In other words, the United States Congress actually passed a useful law that would have allowed entrepreneurs to use social networking techniques to fund start-ups, and President Obama ran a victory lap for the law during the campaign. But yet... no regs, so no new start-ups (and, we observe with at least a little tart, little mention of that fact from the mainstream media).

Sadly, the regulatory agencies can, and often do, kill new businesses in the crib by doing nothing, even when doing nothing includes blowing off Congressionally-mandated deadlines for producing enabling regulations.

Experimenting with crowdfunding

Regular readers know that we have often discussed "crowdfunding" -- authorized by the "JOBS Act" signed by President Obama with much fanfare, but obstructed by his Securities and Exchange Commission, at least by dint of inertia. Along comes a useful suggestion for experimental regulation to free companies to raise money via social media:

President Obama signed the law this past April, and the Securities and Exchange Commission is tasked with implementing its provisions. But the agency has been slow to adopt new regulations and is asking for more time. The delay has been attributed to the complexity of the issues and the need to get the rules right....

A regulatory experiment might do the trick. Specifically, the SEC, in adopting its rules, could treat crowdfunding with a relatively light regulatory touch: for example, by not requiring audited financials but specifying that the rule will expire after three to five years. If the evidence over that period suggests the incidence of fraud is high, then the agency might impose stricter and more permanent requirements.

An excellent idea, assuming the delays in implementing the JOBS Act are in fact in good faith. Given the evident bad faith in other regulatory delays, call us skeptical.

Yet more on crowdfunding...

In case you missed it the first several times we posted on it, here is more on the SEC's crowdfunding debacle.

Rep. Darrell Issa proposes a two-year ban on all Internet regulation

Representative Issa often deploys an ax when a scalpel might be a better tool, but his proposal for a two-year moratorium on all new regulation of the Internet is a good one. Unless, of course, it would delay regulations that would permit crowdfunding...

The shake-up at the SEC and crowdfunding

As previously reported, the SEC has been frustrating thousands of would-be entrepreneurs and the professed will of Barack Obama by failing to implement the crowd-funding provisions under the JOBS Act passed last April. The agency is many months late, and that has frozen business in its tracks. Now, with SEC Chairwoman Mary Schapiro's resignation, entrepreneurs are worried that the regulator will kick the crowd-funding even further down the road.