the company itself. But that's expected to change late this year when federal
officials hammer out new rules as part of sweeping legislation called the JOBS
Act, which is short for Jump-start Our Business Startups.
Portions of the act already allow companies to file initial public offering plans confidentially, which advocates expect will encourage more companies to go public. A newer provision, which has yet to be finalized, makes it easier to directly solicit funding from accredited investors.
"It gives companies tremendous flexibility when it comes to raising capital," said Martin Wellington, an attorney with the Davis Polk law firm in Menlo Park, Calif., who specializes in public and private securities offerings.
What's less clear, experts say, is how the rules will be developed for unaccredited investors. Though many entrepreneurs are eager to tap this new funding source, "it's going to bring in people that are just not ready for prime time," said Sohl, the university professor. "Lawsuits probably will increase. People are going to lose money, there's no doubt."
Massolution's Esposti dismisses such fears, arguing that the vast majority of existing crowdfunding exchanges work well _ and will make sure things stay that way to reassure investors. Exchanges that want to participate in the new program will be registered by the SEC, which will limit how much non-accredited investors can pony up each year.
Naysayers' concerns haven't dampened enthusiasm at Wefunder, a Boston-based crowdfunding platform that launched last year promising to let people "invest as little as $1,000 in some of the hottest startups." While it's currently open only to accredited investors, the site's founders have worked closely with federal regulators to set rules for the hoi polloi as well.
Brad Gessler, co-founder of San Francisco startup Poll Everywhere, said he knows of several entrepreneurs who have raised cash via Wefunder.
"It's not smart money," he said, meaning that crowdfunding sites typically can't offer the operational expertise of venture capitalists or veteran angels.
"But there's definitely a camp of people who say dumb money is OK."
DEMOCRATIZING THE INVESTMENT GAME:
A growing number of online portals are bringing together private companies and investors. They include:
_AngelList: It has been used by more than 1,000 companies to find accredited investors _ often a mix of "angels" and venture capitalists, but smaller investors can play, too.
_CircleUp: San Francisco startup specializes in helping inventors of consumer products such as pet food and organic snacks find investors.
_Crowdtilt: "Groupfunding" site backed by Y Combinator lets groups of friends launch funding campaigns for projects or purchases; money is collected via credit card, and the site takes a cut.
_FundAnything: The site launched by Donald Trump to offer artists, entrepreneurs and philanthropists "money for their dreams."
_FundersClub: It was launched in July 2012 as an "online venture capital firm" whose money comes from individual accredited investors.
_Kickstarter: Like rival Indiegogo, best known as a place to find backers for an artistic endeavor or invention, but small tech companies and other businesses can also launch funding campaigns.
_Liquidnet: It offers a platform to let private companies sell shares directly to institutional investors.
_SecondMarket: The firm also allows for the buying of private-company shares, but by individuals.
_Wefunder: It offers "crowdfunding for startups," lets investors put in as little as $1,000 and is making plans to welcome non-accredited investors once federal rules permit.
SOURCE: San Jose Mercury News research
(c)2013 San Jose Mercury News (San Jose, Calif.)
Visit the San Jose Mercury News (San Jose, Calif.) at www.mercurynews.com
Distributed by MCT Information Services
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