Social media is all the rage and seems to be rearing its head in just about every aspect of daily life. Turn on any television news program, whether CNN, ESPN, or any other, and you’ll be sure to be brought up to date with who has “tweeted” what to whom or what someone’s latest facebook status update means to the future of the world as we know it. However, there is more to social media than providing additional outlets to those persons and businesses already in the limelight. The fact of the matter is that these new social media tools allow just about anyone to widely disseminate information across the world at little to no cost. Naturally, organizations have realized the power of social media for promoting their cause and for fundraising purposes, particularly charitable organizations and political campaigns, many of which have raised significant amounts through a crowd-sourced approach.
Entrepreneurs have also recognized this potential and have sought to utilize social media for their own capital raising purposes. Unfortunately, many of the entrepreneurs may not realize that raising capital in this manner has securities laws implications which, if not sufficiently addressed at the outset, could be extremely detrimental to their business. Accordingly, these social media-based capital offerings are required to be registered with the SEC or offered pursuant to an exemption from registration. Until recently, there did not exist a specific exemption for crowdfunded offerings. However, the recently enacted Jumpstart Our Business Start-ups Act, or “JOBS Act”, created a crowdfunding exemption as the result of a successful campaign by small business advocates who saw crowdfunding as a useful tool to help small businesses in need of capital while at the same time minimizing investor protection concerns by imposing a small per capita investment limit. Many blogs and business-oriented publications have been creating a buzz about the new crowdfunding exemption and have been touting it as a boon for small businesses in need of capital. But as the title, of this post implies, we feel that this excitement is generally misplaced. Continue Reading The new crowdfunding exemption: much ado about nothing