Yahoo! News recently posted a great article called, “The JOBS Act: Could It Create a Two-Tiered System?” Authors, Daniel Gorfine and Ben Miller, address a very important issue which is the divide created between accredited investors and crowdfunders resulting from Title 2 of the JOBS Act. Title 2 includes the removal of the general solicitation ban for 506(c) offerings. What does this change mean for these two different types of investors?
This means that any business setting out to raise money from accredited investors can now use advertising to do so; however, they are only able to accept money from accredited investors. One example of this would be a business owner taking out a full-page ad in the Wall Street Journal advertising the benefits for accredited investors to fund their business.
Crowdfunding, on the other hand, is a completely different offering and does not allow for advertising.
This ultimately creates a divide – forcing entrepreneurs to choose one avenue or the other. We agree with this article in that “if the SEC is not careful, the net effect of the JOBS Act may be to further empower more affluent investors, while leaving the crowd behind.”
SoMoLend has been lobbying for a solution to this issue with strong advocacy for integration. Integration essentially allows an entrepreneur to do a crowdfunding exemption offering via a portal while simultaneously raising money through advertising to accredited investors. While many are pushing for this amendment, it is still under consideration with the SEC now.
In our own meetings with the SEC, SoMoLend has suggested that they allow for integration as long as the offerings have identical terms. For instance, a borrower could accept $1 million through a crowdfunding platform and $5 million through a 506(c) as long as they are willing to offer the same investment terms; we feel this would eliminate the problem altogether.
For us, it doesn’t matter so much how the borrower or investor finds out about the opportunity as much as it does how educated they are on all of the factors involved with the transaction. Whether the information is disseminated through solicitation or word of mouth referrals, the most important factor is the clarity of the message and opportunity. That’s why we strive to keep it simple when it comes to connecting the right borrower to the right lender and are committed to teaching and assisting both parties along the way. For more information on this topic or questions for SoMoLend, please email firstname.lastname@example.org.