Cash From The Maddening Crowd

I am continually intrigued with the relationships that evolve between established legal concepts and social media. A very good example is the recently adopted federal legislation concerning crowdfunding. The law is either one more piece of burdensome regulation, or it’s a common sense limitation on government intrusion, depending on your point of view. Crowdfunding is very simply a process of raising money from a large pool, using social media tools. While charities have effectively used the concept for years, businesses were precluded by law from using it to raise capital. The new law, called the Jumpstart Our Business Startups (“JOBS”) act (is there a Department of Acronyms aka “DOA” in Washington?), cuts through that particular bit of red tape. But it adds some rules. First, it limits the amount a company can raise to $1 million per year. And it looks to protect investors by limiting to $2000 the amount anyone with a net worth of under $100,000 can invest. The transactions will be handled by brokers or Web sites that need to register with the SEC. And the SEC still needs to work out specific rules, so there’s likely not to be too much activity until the end of the year. Consumer groups are concerned with the prospect of people being duped, but let’s face it, that’s a concern that exists as long as there’s e-mail and Nigerian bank accounts. I think it’s a great opportunity for start ups and for small investors. Just be careful out there.