Indiegogo originally wanted to help startups offer shares to their supporters, but there were no regulations in place to permit that when the company was founded in 2008 by Rubin, Danae Ringelmann, and Eric Schell, who were fellow MBA students at UC Berkeley’s Haas School of Business.
Instead, Indiegogo became one of the first platforms for so-called “perks-based” crowdfunding, in which startups reward their contributors with tokens of appreciation, such as tickets to the opening of a film they helped to fund. In reponse to the SEC’s vote today, Rubin said, “Our mission at Indiegogo has always been to democratize funding. All of us at Indiegogo are excited that the SEC is formally expanding the way in which everyone will be able participate in the entrepreneurial ecosystem through the amazing power of crowdfunding.”
While the federal equity crowdfunding rules were being formulated, some states fashioned their own work-arounds. (California, however, with its fertile start-up culture in both tech and biotech, is not one of those states, though funding portals there have been test-driving other openings created by the SEC under the JOBS Act.)
The SEC also made changes today to some of its older rules that govern intrastate equity sales. It wasn’t immediately clear how the new federal rules would affect what one SEC commissioner lauded as a “natural experiment” that the states have been conducting with crowdfunding. The commissioner, Republican economist Michael Piwowar, was the only nay vote against the new crowdfunding rules, calling them “a complex web of requirements.” He cautioned that the need to comply with both state and federal statutes could now make state-based crowdfunding efforts “difficult.”
Whether the audit exemption for first-time issuers eases small-company concerns, and whether the move to sell shares via crowdfunding starts with a trickle or a flood, remains to be seen. There are plenty of other details that have yet to play out. For example, companies are already able to bring on board a very small number of nonaccredited investors. Under the new crowdfunding rules, will companies want to bring on potentially hundreds of investors who might make downstream decisions difficult? As an example, “if you try to raise another round of funding, you might have 300 people to go through for approval,” Clark said. “If a VC wants to invest in the next round and sees there may be people who could be problematic for whatever reason, they may pass on the deal.”
—Bernadette Tansey and David Holley contributed to this report.
—Photo courtesy of Scott S. via a Creative Commons license.
