Five things the SEC should do to make crowdfunding work

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To be successful, crowdfunding requires clear rules from the SEC. 

Crowdfunding won’t work for small businesses unless the U.S. Securities and Exchange Commission limits the burdens imposed on companies that use this new method of raising capital.

That’s what crowdfunding experts told members of the House Oversight and Government Reform Committee today during a hearing on the JOBS Act, the new law that aims to make it easier for small businesses to raise capital. Once the SEC issues regulations governing crowdfunding, small businesses will be able to use Internet intermediaries to raise up to $1 million in small investments from lots of people.

If the SEC imposes too many restrictions on crowdfunding, it could be “strangled in its cradle,” said Brian Cartwright, a former SEC general counsel who is scholar in residence at the Marshall School of Business at the University of Southern California and senior advisor to Patomak Global Partners, a financial services consulting firm.

Here are five things the SEC can do to make sure crowdfunding works:

• Limit the burdens on companies that issue stock through crowdfunding.
• Focus any additional regulatory burdens on intermediaries, rather than on entrepreneurs.
• Allow crowdfunding portals to be flexible on the fees they charge issuers.
• Form a national task force to go after low-level investment fraud.
• Write crowdfunding regulations quickly and clearly.

Read more about crowdfunding and the SEC's checklist at The Business Journal's Washington Bureau.