New Year’s Eve of 2012 came and went this year as it does every year. Some partied. Some slept. But for those of us who are paying attention to the world of equity crowdfunding, Dec. 31, 2012 was supposed to be a day of reckoning. But it wasn’t.
President Barack Obama signed the JOBS (Jumpstart Our Business Startups) Act on April 5, 2012. The legislation required the SEC to issue final regulations regarding the crowdfunding portion of the JOBS Act within 270 days of the law’s enactment — by Dec. 31, 2012. The SEC missed this deadline and isn’t even close to issuing those final regulations. Without them, equity crowdfunding remains illegal.
It’s not a surprise that the SEC missed its deadline. It’s not the first time. The Dodd-Frank Act, which became law on July 21, 2010, was initially scheduled to be enforced no later than April 15, 2011. Now, more than a year and a half after that deadline, the SEC is still working on final rule making for that Act. Many commentators on this subject, including myself, have routinely pointed to this fact over the past several months as we had been telling our clients and others not to expect final rule making from the SEC on the crowdfunding legislation before the Dec. 31st deadline.
To be fair, Congress gave the SEC a monumental task with limited time to complete it. The crowdfunding legislation is a complicated statutory program that imposes significant requirements on issuers and funding websites that participate in crowdfunding offerings. The legislation lacked much-needed specific direction to the SEC in terms of implementing the crowdfunding provisions of the act.
But it’s important that the SEC moves on the crowdfunding legislation. Crowdfunding is meant to be a source of much needed early stage capital for companies. Without question early stage capital is the hardest to raise, since it comes at a time when the company generally cannot attract capital from organized sources such as venture capital and private equity firms. In the meantime, these companies must turn to individuals, angel groups, government and pseudo-government programs and the like — none of which are easy sources of capital for early stage opportunities.
In the meantime, we can only sit and watch as European equity crowdfunding deals are completed. European funding portals are already very successful in France, Germany, and other countries. These dollars could be coming into American funding portals and flowing into American companies.
It’s anyone’s guess when the SEC will actually act on the legislation. Many are saying this will not happen until the beginning of 2014. While equity crowdfunding as it is contemplated in the JOBS Act is not the absolute solution to this funding issue, it is a welcomed additional tool for early stage companies seeking capital. The SEC needs to take account of this and act in 2013.