Updated 5:07 pm ET, Wednesday, November 30
Nevermind Cosmopolitan, Sen. Scott Brown published a piece on Wired on Wednesday, in which he advocates for the passage of a “crowdfunding” bill he introduced recently.
The bill, The Democratizing Access to Capital Act, which Brown introduced on November 9, would alter U.S. Securities and Exchange Commission law to allow smaller investors to buy shares of a startup company before it goes public on “crowdfunding” websites.
Specifically, Brown’s bill, co-sponsored by Sen. Kelly Ayotte (R-NH), and Sen. Saxby Chambliss (R-GA), would rewrite the Securities Act of 1933 to extend an exemption of stock sales restrictions to private startup companies, allowing them to sell shares through crowdsourcing wesbites, so long as the investments are kept to $1,000 dollars or less and the total stocks sold are kept to $1 million a year.
Currently, the SEC only allows qualified institutions, such as Goldman Sachs, and those individuals with net incomes of over $200,000 ($300,000 for couples), or a net worth of over $1 million, to invest in private companies prior to an IPO.
As Brown puts it in the column: “Because of Securities and Exchange Commission (SEC) regulations from eight decades ago, unless you’re the family member of Mark Zuckerberg or a very wealthy individual, the federal government essentially prohibits you from investing your money in the innovative businesses of the future.”
Brown goes on to call the bill “crowdfunding” legislation and draws a parallel between his bill and “crowdfunding” websites Kickstarter and Peerbackers, but notes that they are distinctly different, because although those websites offer users the chance to offer to support a project, they don’t actually give them a stake in the company.
According to Brown: “‘Crowdfunding’ is just a new term for an old idea: offering small-dollar investors the chance to invest in new ideas.”
Brown says that his bill could even help turn the economy around by allowing investors to support projects started in college dorm rooms.
Of course, the obvious counter to Brown’s argument is that those SEC regulations are in place for a good reason: to prevent ordinary, non-savvy investors from getting scammed. But Brown dismisses this in his column as well, pointing to gambling and other online transactions as riskier than investing.
And it’s worth nothing that the House recently passed a similar bill on November 3, the Entrepreneur Access to Capital Act, with bipartisan support. That bill limits individual crowdfunded investments to $10,000 or less, or 10 percent of the investors’ income and caps the total amount of securities issued by a company at $2 million.
By contrast, the Democratizing Access to Capital Act is currently sitting in the Senate Committee on Banking, Housing, and Urban Affairs. We’ve reached out to Brown’s office, the Committee and the SEC for more information on what comes next for the bill and will update when we receive a response.
Late update: Sen. Brown is on Thursday morning (10 am ET) scheduled to testify before the Senate Committee on Banking, Housing and Urban Affairs in a hearing called “Spurring Job Growth Through Capital Formation While Protecting Investors.” There’s a good bet he’ll plug his bill there, but we’ll tune in and update when we get his testimony.
