Crowdfunding exemption movement

The crowdfunding exemption movement in the U.S. is the effort to exempt relatively small investment offerings (typically $1 million or less), sold to the general public in small blocks, from the registration and compliance requirements demanded of large public companies. Inspired by the growth of non-investment crowdfunding, advocates see such exemptions as a way to spur innovation, economic activity, and small-business job creation, but opponents see such changes as invitations to fraud that will target unsophisticated investors. The movement has seen success with the passage of the Jumpstart Our Business Startups Act and a growing number of state-level exemptions, but as of April 2013, the federal law has not yet gone into effect.

The first big push towards an equity crowdfunding exemption came in April 2010, when Paul Spinrad of Make magazine, Jenny Kassan of the Sustainable Economies Law Center (SELC), and Danae Ringelmann of Indiegogo launched the Crowdfunding Campaign to Change Crowdfunding Law to fund the legal work to draft a petition to the U.S. Securities and Exchange Commission for a crowdfunding exemption. After the campaign met its funding goal, SELC interns Aroma Sharma and Kathleen Kenney researched and wrote the petition, which lists the names of all of its financial supporters in the first footnote. The SEC posted the petition as File No. 4-605 on July 1, 2010.

To limit abuse and protect investors, the SELC petition proposed a $100k cap on the entire offering, and a $100 cap on individual investments. Other crowdfunding exemption proposals followed the same two-cap strategy. The lobbying group Startup Exemption, led by Jason Best, Sherwood Neiss and Zak Cassady-Dorion, proposed crowdfunding exemption caps of $1m for the total offering and $10k or 10% of income for each individual investment to the SEC in December 2010, and in early 2011 to the Startup America initiative, which was launched by the White House to celebrate, inspire, and accelerate high-growth entrepreneurship throughout the nation. Sherwood Neiss was asked to testify twice in Congress. His congressional testimony reviewed the pros and cons of crowdfunding.

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