(MENAFN- AFP) Crowdfunding could become a hot new source of venture capital under new US rules proposed Wednesday to allow companies to make private share placements to micro-investors via the Internet.
The new Securities and Exchange Commission regulations would allow companies to raise up to $1 million a year via crowdsourcing without registering the securities.
They also would lower the bar for investors taking part in private placements, giving people with less than $200,000 a year in income the opportunity to get in on the ground floor of new ventures.
Coupled with new guidelines in July that allow companies to openly advertise private placements, including via social media, the SEC's crowdsourcing rules for finance herald a new model for financing small ventures.
"I am pleased that we are in a position today to adopt a rule proposal that would, upon adoption, permit crowdfunding to begin. We want this market to thrive, in a safe manner for investors," said SEC Chairwoman Mary Jo White at a presentation of the new rules.
Crowdfunding has mostly been used by artists and inventors to finance their work via micro-donations, while they retain full ownership of their work.
Five-year-old Kickstarter has funnelled some $830 million to 50,000 projects from some five million donors on this model.
But other companies like Crowdfunder.com have sought to become hubs for venture capital-like funding from thousands of small investors -- though up until now "small" meant "accredited investors" with incomes above $200,000, or net worth over $1 million.
The new rules would exempt companies raising no more than $1 million a year via crowdfunding from registering the issue with the SEC.
People with net incomes or net worth of below $100,000 would be able to take part in crowdsourced issues, with restrictions: they can invest no more than five percent of their annual income or net worth in the issue over one year.
For those with incomes or net worth above $100,000, the maximum would be 10 percent, with a total investment limit of $100,000 over 12 months.
The rules aim to protect small investors from getting overly exposed to risky ventures which might lack the transparency and legal protections required in SEC-regulated share issues.
The agency said it would seek public comment on the proposed rules for 90 days, before deciding whether to adopt them.
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