investors’ income. The exact rules that will govern this process are still being written by the SEC, but they could go into effect as soon as January. When they do, it’s likely to unleash a flood of CircleUp lookalikes; even Kickstarter could, in theory, start selling shares in the companies it promotes.
“It’s clear that there will be a lot of players in the market,” says Eakin. “We are seeing a lot of people indicating that they are coming in as soon as the rules change. And that is somewhat concerning.” After all, it defies human nature to think that this coming wave of crowdfunding wave won’t produce its share of fly-by-night schemes, creating whole new ways for gullible investors to lose money.
Fortunately, CircleUp has a lawyer—Richard Rosenfeld, a securities litigation expert at D.C.-based Mayer Brown—who is part of a committee advising the SEC on crowdfunding. Caldbeck says Rosenfeld has helped the company “develop a legal strategy to make sure we are doing everything right,” and he thinks the SEC’s final rules will include appropriate restrictions on the way companies can market themselves through crowdfunding platforms.
“We think in the end, crowdfunding will only be successful to the extent that investors and companies are finding good outcomes through the platforms they are using,” says Eakin.
And if the early outcomes are good enough—a big if, at the moment—it could even help fuel an era of consumer-product innovation to match the ferment in areas like mobile and social computing. “In industry after industry you see innovation percolating up from the bottom,” says Eakin. “One of the benefits you will see over time from CircleUp is small companies getting the traction they need to grow.”
