Alice has practiced law in the technology area for over ten years, including as Vice President & Associate General Counsel at Rackspace US, Inc. until 2013. While at Rackspace, Alice helped launch the OpenStack project and Foundation, and served on the Foundation’s Legal Affairs Committee. Alice served on Rackspace’s Technical Change Management Board, and founded and managed its Intellectual Property Committee. Alice began her legal career in banking, and has seven years of experience in banking operations and regulatory matters.
The “open” movements (software, data, hardware) are all gaining momentum globally as the engines of discovery and innovation. The open funding movement (crowdfunding) is trying to keep up.
Kickstarter and other platforms are enabling innovative projects that would not have seen the light of day a few years ago. However, it is still illegal in the United States to offer equity securities through crowdfunding. Founders on Kickerstarter and other platforms cannot offer their investors a return on the investment, only a token of appreciation, such as a ticket to an event, or attribution.
Although Congress passed legislation to legalize crowdfunding on April 5, 2012 as part of the Jumpstart Our Business Startups (JOBS) Act, the SEC has been slow to adopt the implementing regulations. There is plenty of public debate about the wisdom of the law, and whether the SEC is legitimately delaying, or is being manipulated by the institutional forces that don’t want a change in the status quo. No need to detail all of that here, and it won’t matter soon since the JOBS act gives the SEC a deadline of September 2013. We should have some regulations soon.
The crowdfunding law, if implemented faithfully, could create investment that is not feasible under the existing financial ethos. Crowdfunders want to invest, not donate, but they may not need a competitive rate of return measured solely by dollars. Community based investors may understand that their investment return includes unmeasurables, such as improvements in their community, the environment, the arts. This orientation toward investing does not compute for many in the financial world, and probably confounds SEC rule makers.
The SEC can scuttle this law by burdening the process with complex rules. The burden of just reading and understanding what is required under existing SEC rules is not insignificant – many thousands of lawyers make an excellent living providing this service for businesses and investors.
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