Change in Crowdfunding Rules for Some Start-Ups

Stacy Cowley reported on the front page of the business section in Sunday’s New York Times that, “If you’ve always dreamed of being Mr. Wonderful from ‘Shark Tank,’ now is your chance.

Starting Monday, new rules will permit anyone, not just the moneyed, to risk $2,000 a year or more investing in small companies in exchange for a stake in the business. Companies can raise up to $1 million a year this way.

“This change, years in the making, represents an enormous shift, one that essentially permits anyone to become a venture capitalist — with all the attendant risks of losing one’s shirt on a company that fails. Until now, only accredited investors, meaning those with an annual income of at least $200,000 or a net worth of at least $1 million, have been permitted to take equity stakes in most private companies. The wealthy ‘sharks’ of the ABC reality television series got to risk their money, while the rest of us watched the action from the couch.”

The Times article noted that, “It is also an opportunity for start-ups and other small businesses, which can raise money with fairly few regulatory burdens. For instance, small companies seeking less than $500,000 and most first-time issuers will not need to provide audited financial statements, just unaudited ones.

“‘For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in,’ President Obama said when he signed the bill into law that set these changes in motion.”

Recall that The Wall Street Journal also reported on the rule changes last week.

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