Regulation of Crowdfunding on the Horizon?

[havocthecat]

Informational link for those interested, though this is full of legalese and I haven't had a chance to parse my way through more than the first couple of paragraphs yet:

SEC Proposes Crowdfunding Rules

I don't know that these would apply to small, individual crowdfunders, but thought it would be important to keep abreast of changes on the larger scale of crowdfunding as well.

Comments

[pyraxis]

The $1 million cap concerns me. That would exclude some of the larger game projects, like Cyan's Obduction, if I'm understanding it right. I'm also not clear on why there would be a $2k cap for pledges for people whose annual income is under $100k. How is that legal? - don't people have the right to spend money on whatever they want?

Well...

[ysabetwordsmith]

My suspicion is that the people in power realized they'd lost a bottleneck, and are seeking to restore it. They don't like it when there are alternatives to dealing with the megacorps. They want to make sure people HAVE TO deal with them, so they can take some of the money away. That's a problem, especially when people are turning to crowdfunding because they've been shut out of the system or walked away having found it intolerable.

Re: Well...

[pyraxis]

Well sure, but that doesn't make it legal. :P AFAIK, this new law was written up by Mary Jo White, Obama's new appointee to chair the SEC. The previous chairwoman was very opposed to crowdfunding and slowed down/blocked a previous version of the rules.

One thing I've been trying to work out is if there is a difference between crowdfunding as we know and love it on Kickstarter and IndieGoGo vs "equity crowdfunding" which is what the rules apply to. Whether equity crowdfunding is the legal term for crowdfunding or whether it means shares of a company, ie stock.

Re: Well...

[ysabetwordsmith]

>>Well sure, but that doesn't make it legal.<<

It's frequently immoral to tell people what they can do with their money. It's potentially destructive. But what is legal is whatever the people in power say it is. They once made slavery legal and resisting it illegal.

I'm in favor of certain restrictions where they are absolutely necessary to protect the fabric of society, such as a minimum wage and a cap on campaign contributions. I'm unconvinced of compelling need in this case.

>> One thing I've been trying to work out is if there is a difference between crowdfunding as we know and love it on Kickstarter and IndieGoGo vs "equity crowdfunding" which is what the rules apply to. <<

I believe there is ...

>> Whether equity crowdfunding is the legal term for crowdfunding or whether it means shares of a company, ie stock. <<

... because cyberfunded creativity comes with product rewards (i.e. a copy of a game) but not a return on investment in the form of cash back as the company grows. Equity crowdfunding is an investment model, where people hope to get money back eventually. At least that's how I've heard it described. It's a way to find investors, for projects the banks won't fund or people don't want to use banks.

Some regulation is probably necessary to make sure that business creators don't simply take the money and run. But the proposal has problems -- for instance, the $2000 cap makes it difficult or impossible for one or a few superfans to make a project happen. That's a problem because crowdfunding HAS people who watch for opportunities like that.

Re: Well...

[pyraxis]

Agreed about the superfans. The point about equity crowdfunding was that if the rules only apply to the equity investment model, then most projects are still safe. Superfans can still fund the projects they like in the amounts they like, because they're getting a material return (products, swag, dinner with the company stars, etc).

I'm not out to get into a political argument about the inherent value of laws. Too busy working on my own projects. :)

Re: Well...

[ysabetwordsmith]

>> The point about equity crowdfunding was that if the rules only apply to the equity investment model, then most projects are still safe. <<

It's the precedents that make it dangerous. What can be applied to one version of crowdfunding might be extended to another. That's something to keep an eye on.

There is a very worrisome trend throughout the economy of requiring people to have money before they are allowed to make money. It's all about sawing the bottom rungs off the ladder. Droves of people are going into creative ventures because the dayjob quit them and they have no other means of making an income. Crowdfunding currently doesn't require getting anyone's permission or paying exorbitant sums for licensing and school. So if you know about that trend, you know to be protective of ways to make a living that don't yet require payment up front.

Thank you!

[ysabetwordsmith]

I appreciate the news post. This is worrisome.