Starting May 16, 2016, companies can use crowdfunding to offer and sell securities to the investing public. However, when you think of selling securities, don't confuse the publicly traded stock of, say, FB or SBUX, with the equity purchased through crowdfunding. As the SEC warns in their Investor Bulletin on the topic:
Illiquidity. You will be limited in your ability to resell your investment for the first year and may need to hold your investment for an indefinite period of time. Unlike investing in companies listed on a stock exchange where you can quickly and easily trade securities on a market, you may have to locate an interested buyer when you do seek to resell your crowdfunded investment.
In other words, selling these securities would make trying to sell your home seem easy by comparison. On the other hand, buying these securities is about to become extremely easy. As the SEC explains, "Anyone can invest in a crowdfunding securities offering. Because of the risks involved with this type of investing, however, you are limited in how much you can invest during any 12-month period in these transactions. The limitation on how much you can invest depends on your net worth and annual income." Basically, for lower-income and net-worth investors, a few thousand dollars per year can be invested in an early-stage company using crowdfunding. For higher-income and net-worth investors, up to about 10% of the lesser of their income or net worth can be invested--not to exceed $100,000 per year.
Frankly, I'm a little surprised at how liberal these restrictions are. Then again, the SEC is all about full disclosure, and crowdfunding investors will have to sign various acknowledgements before investing and will only be investing through entities registered with the SEC and FINRA. These intermediaries--broker-dealers, mostly--must provide all kinds of education to such investors, because this is about as high-risk as investing can get. As the SEC states, "Before you can make a crowdfunding investment, the broker-dealer or funding portal operating the crowdfunding platform you are using must ensure that you review educational materials about this type of investing. In addition, you will have to positively affirm that you understand that you can lose all of your investment and that you can bear such a loss. You will also have to demonstrate that you understand the risks of crowdfunded investing."
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