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Jan 17

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CFOs updated on JOBS Act

CFO EVENT ON JOBS ACT – Tuesday, January 15th, 2013

Guest Post by Chris Baron for Rockies Venture Club

The Denver Chief Financial Officers Group met at IMA, Inc. offices in LODO Tuesday to hear a presentation by attorney John Eckstein on the status of the JOBS Act.

The Jumpstart Our Business Startups (JOBS) Act was Act signed into law April 5th, 2012 by President
Obama to provide cost-effective access to capital for companies of all sizes. Finalization of the Act’s
details has been anticipated by both companies wanting to work in the space as well as by those
wanting to raise capital.

The measure would provide a new form of financing to small companies. Through crowd-funding, or the
sale of small amounts of stock to many individuals, companies could solicit equity investments through
the Internet or elsewhere, raising up to $1 million annually without being required to register the shares
for public trading with the Securities and Exchange Commission.

Eckstein, of Fairfield and Woods, P.C., spoke to a filled room, and described the Act as, “the most
important deregulation in securities and finance since I became a lawyer.” “This proposal will allow
small businesses to go direct to general advertising and general solicitation, without any intermediary
whatsoever, and this is for businesses of any size, and it includes hedge funds and private capital.”

Typically crowd-funding attempts to raise capital for new projects and businesses by soliciting
contributions via three types of crowd-funding models: (1) Donations, Philanthropy and Sponsorship
where there is no expected financial return, (2) Lending and (3) Investment in exchange for equity, profit
or revenue sharing.

Eckstein provided a high level overview of the Act’s progress and status. The Act consists of 7 sections,
including Title II – Access to Capital for Job Creators; Title III – Crowd-Funding; Title IV – Small Company
and Capital Formation.

While elements of the Act have been solidifying, everyone is waiting to for the SEC to finalize the crowd-
funding section, expected sometime in 2014.

The main concerns in Congress and the SEC revolve around protecting investors. Eckstein joked that
Congress’s definition of the crowd-funding Act is “Capital Raising Online While Deterring Fraud and
Unethical behavior.” “That’s Crowdfunding from the view of the SEC and Congress but that’s not how
the people in Boulder and the people at companies like Kickstarter think of it,” he said.

About the Crowdfunding Industry

In what is already a multi-billion dollar industry, the equity part is poised for significant growth upon
completion of legislation due to very tight capital markets and the publicity of project success stories on
platforms such as CircleUp and Kickstarter.

CircleUp announced January 10th, 2013 that it had helped raise five food-related businesses raise over
$5 million. It combines the popularity surrounding small-production, high-quality products with the
momentum of crowd-funding. It’s an equity-based platform that enables accredited investors to make
direct investments in up-and-coming consumer products businesses.

Accredited versus non-accredited investors is something that those seeking capital need to be aware of,
as there are different requirements for different offerings.

On January 8th, 2013 Kickstarter, which focuses on creative projects from Games to Film and Music to
Fashion announced it’s Best of 2012, which highlighted $319 million raised for 18,000 projects and 2.2
million backers.

Perhaps the most publicized project to date was the Pebble watch, which raised over $10 million and is
scheduled to ship early this year after some delays. And earlier today, the world’s thinnest watch, the
anti-Pebble, has raised over $500,000, or 250 percent of its funding goal and the founders aren’t sure
how much they will eventually raise beyond their $200,000 initial goal. The watch is due to ship this
September.

It’s these kinds of numbers that have entrepreneurs excited by what will happen when the crowd-
funding provision of the JOBS Act is finalized. And as crowd-funding leaves narrow niches and becomes
available to businesses of various sizes and industries, it will provide a completely new space for
entrepreneurs and investors to meet.

Chris Baron is a guest reporter for Rockies Venture Club.

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Permanent link to this article: http://www.rockiesventureclub.org/2013/01/cfos-updated-on-jobs-act/

2 pings

  1. The JOBS Act could radically remake our economy | A Man With A Ph.D.

    [...] The JOBS Act is already law, and it required the SEC to create specific rules by specific deadlines. The SEC is working on the rulemaking, but it has made it clear that given the complexity of this new finance structure, meeting the deadlines is not achievable. No one is happy with the delay but the rules should be done in late 2013 or early 2014. [...]

  2. How crowdfunding and the JOBS Act will shape open source companies - O'Reilly Radar

    [...] The JOBS Act is already law, and it required the SEC to create specific rules by specific deadlines. The SEC is working on the rulemaking, but it has made it clear that given the complexity of this new finance structure, meeting the deadlines is not achievable. No one is happy with the delay but the rules should be done in late 2013 or early 2014. [...]

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