The US Securities and Exchange Commission (SEC) approved new crowdfunding rules which will allow startups to raise funds from investors over the internet.
The SEC voted 3 to 1 to approve the new rules which set to help boost small business growth.
Unlike Kickstarter or GoFundMe, equity crowdfunding allows the investor to own a stake of the business.
Startups were previously only permitted to give equity to accredited investors – people with a net worth of at least $1 million. The rich used to be the only people able to buy stakes in startups, but now that has changed.
Mary Jo White, the chair of the SEC, commented on the issue in a speech in New York on Wednesday. “These new offering tools can reach a wider set of potential investors than before, including in some cases investors new to the securities markets—investors who unfortunately may be most susceptible to fraudulent practices and most in need of our protection,” she said.
However, Commissioner Michael Piwowar, who voted against the measure, believes that it is not such a great idea:
“I fear that many traps for the unwary are hidden in the regulations, creating potential nightmares for small business owners that fail to place regulatory compliance at the top of their business plans. Such burdens will spook many small businesses from pursuing crowdfunding as a viable path to raising capital,”
He added that the commission “cannot trust ordinary Americans … to be able to exercise appropriate judgment in how to spend or invest their resources.”
Crowdfunding refers to using online platforms to ask for contributions to fund projects, business ideas, movements, etc.