Photo: Flickr / higgot
Surprise! The Senate has passed a bill that would legalise crowdfunding as a way to invest in companies.Many had thought this day would never happen. The House had already passed an earlier version of the The JOBS Act, and the President has already said he would sign it.
However, there is a wrinkle.
Several Senators changed the bill, reports Politico. They were concerned that it didn’t protect investors. That’s the age-old argument against crowdfunding. So, the bill will go back to the House for discussion of the changes, instead of to the President’s desk for his signature.
The Senate added two requirements to the JOBS Act: that crowdfundiing could only occur through SEC-approved crowdfunding platforms and that businesses would be limited to raising $1 million per year, writes The Daily Crowdsource.
Crowdfunding is the Internet-era way to raise seed money. Sites like Kickstarter, CrowdFunder, Wefunder, and Indiegogo allow many people to donate money to projects that strike their fancy. People can donate as little as a few bucks to as much as a few thousand.
But, the way the law stands now, their donation can’t give them an interest in the startup, nor can it be paid back like a loan. Companies give perks instead such as samples of the product, T-shirts, or weird stuff like dinners with the founders or promises to be featured in national advertising campaigns.
These kinds of perks have been good enough for crowdfunding sites to do well. Last month, Kickstarter made news when two of its projects raised over $1 million. Another 6 raised $250,000 to over $900,000.
Indiegogo has also raised millions of dollars for various projects, says CEO and founder, Slava Rubin.
Rubin wants to see Congress uncork the limitations holding back crowdfunding.
“If you pass this act, you create jobs,” Rubin told Business Insider. “It’s a great way of injecting more capital into the system.” But he says, traditional banks and investment firms “are afraid” of losing their capital-granting monopolies and have been quietly lobbying against crowdfunding.
As for the objections that crowdfunding sites don’t do enough to protect investors, Rubin says that, too, is best left to the wisdom of the crowds.
“Some of the arguments against crowdfunding is that it leads to fraud. If we were full of fraud would be out of business. We’ve had virtually no fraud in over four years,” he says.