Start-ups and entrepreneurs alike are closely watching the crowd funding bill currently making its way through Congress. The bill, H.R. 2930, the Entrepreneur Access to Capital Act, is now in the Senate.
While the main focus of the bill’s analysis is justifiably targeting the meat and potatoes – the ability to crowd-source up to $2 million a year, and the ability for a new class of baby angel investors to invest $10,000 or 10% of their annual income – there is another component of the proposed Act worthy of some attention: H.R. 2930 requires crowd funding businesses to alert the SEC to its intentions before taking on any investors.
Here is the text in the bill, as it is now written, at Section 4A(B)(8):
“[A]n issuer who offers or sells securities without an intermediary shall comply with the requirements of this subsection if the issuer…provides the Commission with notice of the offering, not later than the first day securities are offered to potential investors.”
Compare this requirement to other SEC notification requirements in typical capital raises. Businesses are required to notify the SEC of Regulation D filings, through Form D, but only after the “date of first sale.”
It’s worth noting too that this requirement is present for entities using an intermediary as well, a broker/dealer for example (see the proposed Section 4A(A)(9)).
Hopefully this requirement can be easily satisfied via an online form. One can only hope, anyway. With seemingly large interest in crowd funding (what else is the impetus behind the clamoring for crowd funding), one has to wonder how the SEC will keep track of the volume of notification submissions. If crowd-funding goals aren’t met, capital raises abandoned, a large crop of the notifications sent to the SEC may be half-baked ideas that go no further than the notification process itself.