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JOBS Act Stalls In U.S. Senate Over "Crowdvesting"

Last week, the JOBS (Jumpstart Our Business Startups) Act cruised through the U.S. House, only to stall in the U.S. Senate this week. The culprit: Something called crowdvesting. Here's a primer.

In the United States, investors can use sites such as Kiva and Kickstarter to invest in philanthropic endeavors, but for-profit start-ups can't use the Internet to seek out investors looking to make a profit -- e.g., crowd investing or "crowdvesting." Crowdvesting is highly illegal under current U.S. securities laws. And the U.S. Senate might just keep it this way. According to a Filmmakermagazine.com article:
Currently, it is illegal to use crowdfunding platforms like Kickstarter and Indiegogo to solicit actual investments. Monies pledged on these platforms are donations usually lacking any tax benefit or further income possiblity [sic] for the funder. (Or, increasingly, they are pre-buys for a specific goods or services.) The JOBS Act aims to change that, allowing businesses, including filmmakers, to solicit actual investment over the internet. A person — even someone not qualifying as an "accredited investor" — could invest up to $10,000, or 10% of his or her income (whichever is less), in a startup capitalized at $1 million or below and receive an equity position in the business.

The Republicans love the idea of crowdvesting, but Senate Democrats are dragging their feet on this section of the JOBS Act because they think the current version of the bill would allow predators to prey on small, mom-and-pop investors.

So the JOBS Act, which President Obama is waiting to sign, sits in limbo while the U.S. Senate works it out, which I hope it will because early-stage start-ups rely on investment funds to hire their first employees, which, in turn, would be very good for our economy. Regulators and The New York Times editorial page, however, loathe the idea of crowdvesting as the House GOP envisions it. They might have a point there.

Will you eventually be able to sit at home with your laptop and invest directly over the Internet in start-ups while munching on Cheetos and watching reruns? It's the American dream, isn't it? I'll keep you posted.

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