SEC may let startups use social networks to raise money
“The Securities and Exchange Commission may adopt rules to let internet-age technologies be used in fund-raising. The agency is considering whether to let fast-growing companies use social networks such as Facebook and Twitter to raise funding by tapping thousands of investors for small amounts of money, the Wall Street Journal reported.
The move is part of a larger review by the Securities and Exchange Commission into whether to ease decades-old constraints on how companies can issue new shares to the public. The new funding techniques, known as “ crowd funding,” could usher in a new era of capital abundance for Silicon Valley’s startups.
The technique has spread from artists looking to fund their creative works to entrepreneurs trying to bootstrap companies without giving up control to venture capitalists. Typically, a company might raise $100,000 from an internet site where users could sign up to buy $100 worth of shares.
Crowd funding could be a cheap source of cash, competing with angel investors who specialize in giving seed rounds to start-ups. Since the amounts of money are small, the downside risk isn’t too bad for investors. But the trick will be in protecting the public from scammers who have no intention of following through on promises.” – Article