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CROWDFUND Act to Encourage Safe, Accessible Investing Through the Internet

Press Release

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Date:
Location: Washington, DC

Today, a bipartisan group of senators introduced legislation to provide online funding for startup companies while instituting strong protections for investors. The Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2011 (CROWDFUND Act) would legalize and regulate the raising of start-up capital for small businesses on the internet. The promise of crowdfunding is that investments in small amounts made through transparent online forums can allow the "wisdom of the crowd" to provide funding for small, smart companies.

The bill is cosponsored by Senators Jeff Merkley (OR), Michael Bennet (CO), Scott Brown (MA), and Mary Landrieu (LA).

In crowdfunding investment, a start-up venture would publish information and allow investors to offer capital. If pledges for enough potential investors reach a threshold, the deal would move forward.

"The Internet has opened the doors for business growth and innovation of all kinds. The CROWDFUND Act will allow that innovation to continue by allowing small investors to pool their resources to fund promising new ventures," said Merkley. "At the same time, this bill protects those investors and sets fair rules of the road. We'll be creating new opportunities for small businesses and investors alike."

"These proposals will help inject capital into small businesses and start-ups in Colorado and throughout the country and harness potential small investors who otherwise would not have the infrastructure to invest in these smaller companies," said Bennet. "We can help drive innovation, promote job growth and support small businesses, the backbone of our economy, in a way we have not seen before by bringing our securities regulations into the 21st century."

"With this bipartisan compromise we are now closer to freeing Massachusetts' small businesses to use the powerful tool of crowdfunding," said Senator Brown. "It's time to level the playing field for investors so that anyone can provide the seed money that will allow the Bay State's innovative startups and entrepreneurs to grow their businesses and create jobs."

"Many of the most successful startups are at the forefront of technology, so it only makes sense to make use of the technological tools at our disposal to increase investment in America's small businesses. The question has always been striking the right balance between finding innovative ways to open up access to capital, while still protecting people who take money out of their paycheck to support a small business. Crowdfunding has the promise to fill a real financing need for small businesses, but we have to do it right. I think this bill strikes that balance," said Landrieu.

Normally, when a company seeks financing from the public it must register as a security with the Securities and Exchange Commission, providing detailed disclosures. The CROWDFUND Act would provide an alternative to this process, allowing companies to raise up to $1,000,000 annually through crowdfunding on registered internet websites.

The bill would also implement basic marketplace protections for the ordinary investors seeking to take advantage of this new marketplace. Web sites seeking to list companies must register with the regulators and provide investors the basic information about the companies they list. And crowdfunding companies themselves must provide basic disclosures to investors and regulators.


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