Equity crowdfunding goes live in the US

As of yesterday, small companies and start-up firms in the US can sell shares through crowdfunding portals for the first time, allowing companies to raise up to $1 mn online over 12 months.

The new rules, which stem from the 2012 JOBS Act, mean small businesses in the US can now sell ordinary shares to Main Street investors. Previously, investments were restricted to accredited investors or high-net-worth individuals, while crowdfunding portals in the US offered merchandise rather than shares.

A number of offerings were available as the new rules came in, such as Santa Monica-based musicians’ network Gigmor and Bloomery Investment Holdings, a distillery in West Virginia. Each company is using the StartEngine equity crowdfunding platform – one of only a few approved so far – and looking to raise $300,000.

Despite the hype, and the lengthy wait for the new rules to be implemented, take-up is likely to be slow. Companies must raise money through a registered broker-dealer or a funding portal approved by regulators, and higher costs, disclosure requirements and the newness of the rules are all likely to limit the number of firms seeking to raise capital in this way, at least to begin with.  

Self-regulation group the Financial Industry Regulatory Authority (Finra) has issued advice to investors setting out the rules around equity crowdfunding and the levels of disclosure shareholders should expect, but what about IR at these new issuers? One company looking to help answer that question is KCSA Strategic Communications, which has launched a platform dedicated to crowdfunding IR.

‘Equity crowdfunding will help thousands of companies to access growth capital, enabling them to achieve their full potential,’ says Jeffrey Goldberger, KCSA managing partner, in a press release announcing the launch of CrowdFund Communications. ‘By selling shares to non-accredited investors, these companies will have a responsibility to regularly update their shareholders.’

While these firms are likely to have limited experience in investor relations, Goldberger tells IR Magazine that the fundamentals should remain the same. ‘Size doesn’t matter when communicating with investors,’ he says. ‘A dollar invested in a small or large cap is no different from a dollar invested in a crowdfunded company; it’s still a dollar of hard-earned money an investor is putting to work in the hope of an eventual return on [that] investment.

‘Therefore the same rules should apply to how companies communicate with investors (both accredited and non-accredited): frequently, thoroughly and thoughtfully.’