Getting Started with Crowdfund Investing In a Day For Dummies by Sherwood Neiss

Author:Sherwood Neiss
Language: eng
Format: epub
Publisher: Wiley
Published: 2012-10-23T00:00:00+00:00

Chapter 4

Working with an Online Investing Platform

In This Chapter

Figuring out what the law requires from funding platforms

Researching the services a funding portal offers

Getting specific in your portal shopping

Picking a powerful online crowdfund investing platform is just as important as pitching a winning idea to potential investors. That’s because the JOBS Act legislation states that you can use this type of platform to seek crowdfund investment; you cannot — we repeat, cannot — set up your own website, call people on the phone, put a notice in your local paper about the terms and details of your offering, or use other means to raise funds this way. (As we explain in this chapter, crowdfund investing also can take place using a broker-dealer, but the online funding platforms are usually less expensive and more suitable for the relatively small amounts being raised.) This requirement ensures that the Securities and Exchange Commission (SEC) can keep tabs on all crowdfund investing activity to protect investors and verify that everyone’s playing by the rules.

Crowdfund investment funding platforms of all shapes and sizes will pop up to meet demand. When the crowdfund investing industry makes its debut, you want to find the right portal to fit your needs: one that helps you achieve transparency, helps your investors become more informed, and helps the entire funding process be completely compliant with SEC regulations.

How will you know which online platform to choose? This chapter is your initial guide, and after you’re done reading it your next stop is www.crowdfundingprofessional.org, the website of the Crowdfunding Professional Association, a crowdfunding industry trade association that we helped to launch when the JOBS Act was signed. It’s a one-stop shop for entrepreneurs seeking to secure crowdfund investments, online platforms seeking to offer crowdfund investments, and investors looking for education on making such investments. In the future, you will find a list of all the SEC-registered funding platforms on that site. For now, you can use it to stay informed about the industry’s progress and the status of SEC regulations on crowdfund investing.

Understanding JOBS Act Provisions about Investment Platforms

To connect entrepreneurs with their social networks and help investors get the tools they need to make sound decisions, while at the same time protecting against fraud, the JOBS Act contains provisions that specify minimum activities that an online crowdfund investment platform must do. In this section, we describe these activities. But first, we explain the difference between an online funding portal (the type of platform we focus on in this chapter) and a broker-dealer that can also host a crowdfund investment campaign.

Distinguishing funding portals from broker-dealers

The JOBS Act distinguishes between two types of crowdfund investment platforms:

Online funding portals

Broker-dealers

Here’s why: Prior to the legalization of crowdfund investing, anyone seeking to raise capital needed to do so under the guidance of a broker-dealer — an individual or business registered with agencies including the Financial Industry Regulatory Authority (FINRA; www.finra.org) and North American Securities Administrators Association (NASAA; www.nasaa.org). Broker-dealers pay

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