Crowdfunding seems to be the latest buzz. I thought it would be good to know a little about it from the renovator’s perspective. Eventually, I’ll also write about it from the investor perspective.
What Is Crowdfunding?
In the loosest terms, crowdfunding occurs any time you raise money for a project over the Internet. It is a relatively new phenomena, originating with the Jumpstart Our Business Startups (JOBS) Act of 2012. That act created a loophole—and I use the word intentionally—by which businesses can market securities to the general public over the Internet. The act also demanded a “regulatory structure” to control those activities.
Even though the JOBS Act passed in 2012, SEC regulations—that “regulatory structure” were not in place until May 2016. Until then, companies were strictly forbidden from advertising securities, but it’s still not the Wild Wild West.
You really don’t want to get on the wrong side of the SEC, so you should always consult your own attorney—one who specializes in crowdfunding—before raising capital through this medium.
That said, here is a brief list of the regulations to enable you to determine if getting started with crowdfunding your project is worth the effort:
- The total value of the project cannot exceed $1,070,000.
- Individual investors are limited in the amount they can contribute by both net worth and annual income.
- You must conduct the funding through an authorized online service, and you can only offer your project on one service.
- Advertising and promotion of the offering are strictly limited to only a few bits of data, primarily where the security is offered and the terms of the security.
- Once purchased, the securities can’t be sold except to the issuer or an accredited investor.
- If you are determined to be a “Bad Actor,” you’re still screwed.
That’s not really enough information to go on. It’s not supposed to be. If you are seriously interested in crowdfunding a project, talk to your lawyer. Seriously.
You can also find more information at the URLs provided in the bibliography. You can also find a better overview on 7 Rules for Real Estate Investing podcast, Episode 48. That is a discussion with crowdfunding attorney Mark Roderick. (Roderick, n.d.) If you want to geek out on crowdfunding, you can follow Roderick’s blog. For more updates, follow Roderick’s blog.