A few years ago, Kickstarter Inc. and Indiegogo Inc. took the world by storm by giving inventors, artists and entrepreneurs the chance to raise money from millions of people at the touch of a button.
Late last month, the Securities and Exchange Commission finalized new rules that could take the crowdfunding revolution to the next level by allowing small businesses to sell shares to the general public without becoming fully registered public companies.
One investor and tech industry leader who’s already planning to capitalize on the new rules is Howard Marks, former chairman of Activision Publishing Inc. and now founder and managing director of four-year-old Santa Monica tech accelerator StartEngine.
Anticipating the changes, which are finalized reforms to the Jumpstart Our Business Startups Act (Jobs Act) of 2012 and should become effective about two months from now, StartEngine laid the groundwork to launch an online portal in the vein of Kickstarter through which private companies can sell shares to the public.
“We raised capital and we have invested two years with a small team to make this happen,” Marks said.
The new rule, known as Regulation A+, should benefit all startups, he said, particularly media companies built around a piece of intellectual property that find themselves outside the wheelhouse of traditional financing entities – think a company that makes a movie or mobile game.
“VCs don’t like to invest in IP. They like to invest in platforms,” Marks said. “These companies will now have access to capital from their fans. Those fans feel like they’re part of your company and they become brand ambassadors.”
Until the regulatory change, private companies were able to only raise money from accredited investors: individuals who either earn more than $200,000 per year or have a net worth of more than $1 million, and firms with more than $5 million in assets.
Marks said StartEngine hasn’t finalized how big a cut of the capital raised through its platform it will take for itself, but he expects it to be less than the 10 percent typically charged by registered broker-dealers.
Some tech companies have taken advantage of existing rules that permit crowdfunding from accredited investors, spawning a cottage industry of real estate crowdfunding businesses.
One such business is L.A.’s AssetAvenue Inc., which crowdfunds commercial real estate loans for borrowers that traditional banks won’t back. The company last week closed an $11 million Series A round.
While the recent reforms could open up a whole new class of investor for AssetAvenue, its founder and chief executive isn’t so sure his firm will tap that source of capital.
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