Some of the nascent crowdfunding industry’s most influential players descended on the nation’s capital on Tuesday, urging the White House, Securities and Exchange Commission and others to move forward with regulations establishing the parameters for the new fundraising process.
Members of the Crowdfunding Professionals Association, a New York-based nonprofit trade organization, met with lawmakers and other government officials to demonstrate fundraising technology and to brief lawmakers about the current state of crowdfunding.
Though speakers addressed different facets of crowdfunding, they all had one general request to the SEC: move quickly.
“There is quite a bit of power right now in the hands of [SEC Chairman] Elisse Walter,” said Candace Klein, chief executive of Cincinnati, Ohio-based debt-financing platform SoMoLend during a press conference on Tuesday. She wants Walter to make drafts of the rules available for public comment.
“If that were to occur, we’d begin to see movement and could anticipate seeing some kind of implementation by the end of this year,” Klein added.
Though Klein and other members of the trade group have had about 30 meetings with the SEC staff and officials with the independent securities regulator, the Financial Industry Regulatory Authority, so far, “there is no proposed timeline,” she said.
The SEC’s timing is further clouded by the impending confirmation hearings of Mary Jo White, Obama’s nominee for the agency’s next chairman, which haven’t yet been scheduled. “Many of us are sitting with a question mark as to whether the rules will be called now, or whether they will not be called until she is confirmed,” Klein said.
Other crowdfunding leaders sought to demonstrate to lawmakers that the industry is already poised to regulate itself, addressing the SEC’s concerns about investor protection once crowdfunding is open to the public.
Sara Hanks, chief executive of Alexandria-based start-up CrowdCheck, explained during the press conference that inexperienced investors could fall victim to entrepreneurs’ knowingly unrealistic promises, but that services like CrowdCheck provide due diligence reports to investors and guide entrepreneurs through the crowdfunding process.
Until the SEC delivers its rules, equity-based and debt-based crowdfunding remains closed to the public. Platforms like Kickstarter and Indiegogo currently allow the public to make small donations in exchange for rewards — sometimes material rewards or sample products, other times simply recognition — but buying stakes in a business is largely prohibited.
“I call that crowdfunding 1.0, which was about transactions. It wasn’t about long term relationships, but largely based on impulse funding of $25 or $75, where people got involved in projects, not businesses,” said crowdfunding platform crowdfunder.com chief executive Chance Barnett.
Once the regulatory barriers are moved, investors can build deeper, longer-lasting connections with entrepreneurs in their community, “we can move into this world of crowdfunding 2.0,” Barnett said.