Startups awaiting permission to "crowdfund" for new investors

Feb 13, 2013

Startup businesses in upstate New York, a region that sometimes struggles to attract big investors, are anxiously awaiting permission to begin soliciting funding from a new type of investor.

The Jumpstart our Business Start-up - or JOBS - Act, passed last year by Congress, allows for more flexibility for crowdfunding investors -  individuals making smaller investments in return for a stake in the company.

Right now that type of investment is limited to only very high income people like angel investors or venture capitalists.

Less restrictions on crowdfunding opens up a whole new arena of investor.

"Everybody that you went to college with, everybody in your high school that you knew. Just people that you don’t even know that heard about a really cool idea on the street that happens to be yours," says Doug Gorman, a partner at Crisafulli Gorman, a boutique law firm that advises startups in upstate new York. "That’s the biggest game changer."

Those close to the startup scene in upstate New York often site a lack of available capital as a hurdle for entrepreneurs to get off the ground.

In the meantime, many startups have begun using websites like Kickstarter to bring in smaller donations, but that has its limitations and challenges.

The Securities and Exchange Commission was supposed to release the new crowdfunding regulations last month, but the process has been delayed. Gorman says that's left a lot of new companies in a holding pattern.

"We got to the point around September where everybody sort of reached a fever pitch of really excited about this: 'what do we do? What do we do to get ready?'" Gorman says. "And we just had to say ‘well, let’s just wait. Let’s just wait for the SEC to come out with their regulations. They should be out in January.’ Well, January’s come and gone."

A spokeswoman for the SEC told Bloomberg News: “We’ve been working very hard on this complex rule-making effort and very much appreciate the extensive input we’ve received from potential crowdfunding participants and others. We will continue working hard, amid a busy rule-making agenda, to get these crowdfunding rules done as soon as possible—and done right.”

Once the SEC comes out with the proposed regulations, they'll need to conduct a 90-day comment period and then finalize the rules. That means late 2013 is an early projection for crowdfunding to become a possibility for startups.