Fixing equity crowdfunding

In his address to the electorate from Chicago some nine hours ago, President Obama seemed to me like he was finally giving full expression to his convictions about the American narrative.

Fixing equity crowdfunding

It's a nuanced story in which America's progress is always measured by the collective good, always built through citizen engagement on the bedrock of individual agency.

Combine that vision with the political reality of how the House of Representatives remains controlled by Republicans, many of whom have a populist streak. There may be no more philosophically important, more do-able agenda item for Obama's second term than fixing equity crowdfunding for average Americans.

On two key fronts, crowdfunding is not broken.

To take what Kickstarter CEO Perry Chen says at face value, Kickstarter will continue to explore the extent to which Americans might support creative artists and innovators outside the paradigm of equity ownership.

Inside the paradigm of equity ownership, angel investors, and the groups and platforms that organize and syndicate deals among them, are set up to take to equity crowdfunding with abandon. If the amount of the average angel investment declines and angels begin to spread their dollars across a wider range of startups and emerging private companies, a few of the distinctions between angel activity and portfolio investing could begin to blur.

But average Americans are left out of equity crowdfunding. They have the Kickstarter paradigm available to them but not the psychological respect or personal agency that comes with an equity investment in a small business.

Average Americans are left out, because the equity crowdfunding provisions of the JOBS Act are not workable.

Startup lawyers have long seen that the equity crowdfunding provisions of the JOBS Act are not workable. There are too many strings, too many conditions, too many impractical burdens in Title III of the JOBS Act.

Now, I am beginning to hear from smart, idealistic, entrepreneurially minded non-lawyers, who had thrown themselves into the nascent equity crowdfunding industry with enthusiasm, that they are also concluding that the legislation is not workable. At best, the exemption may be a new field for registered broker-dealers to ply in pushing "products," having little or nothing to do with individual empowerment and civic engagement at the local level.

Equity crowdfunding for average Americans needs a do-over. Rep. Patrick McHenry of North Carolina would do well to acknowledge this reality. He should approach the White House to propose that House Republicans and the Administration try again.


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