The JOBS Act includes a provision that allows small businesses to offer the general public up to $1 million in company equity per year through online funding intermediaries. This is significant as it will create a new source of capital for breweries as well as new investment opportunities for craft beer enthusiasts. We created CraftFund to be the intermediary that connects breweries and other craft beer businesses with their crowds in a common project of disrupting the beer industry. It has been one year since the JOBS Act was passed by Congress. So why are we still waiting?
The crowdfunding provision is a significant change to securities regulations and is not effective until the federal agency that oversees securities laws (SEC) writes rules implementing the new provision. Translation: investment crowdfunding for the general public is not legal until the SEC takes action. Congress gave the SEC until the end of 2012 to write the rules. The SEC obviously missed this aggressive deadline. Betting on agency rulemaking is like betting on the Chicago Cubs, but expect agency rules to be finalized towards the end of this year at the earliest. For those of you sick enough to care, here are a few reasons for this timeline:
- Leadership turnover. Mary Jo White was just confirmed by the Senate as the next Chairman of the SEC. Chairman White will likely need time to familiarize herself with agency action items and set her priorities. There is also turnover in other key agency leadership positions.
- Investor protection concerns. The SEC is responsible for protecting investors; it is pretty clear that the agency believes investment crowdfunding raises certain investor protection issues. Whether you view it as intentional foot dragging or conscientious rule writing, the fact remains that the SEC does not want to rush this process.
- SEC rule-making process. Once drafted, the rules will not become effective overnight. Rather, there is a typical process the agency follows once it reaches consensus on rules. First, the rules will likely be released in the form of a proposal. A 60 day comment period typically follows whereby anyone can submit comments on the Rule Proposal. Once the comment period has ended the SEC will review the comments and decide whether to make any changes before releasing a "Final Rule." The time between the Rule Proposal and the Final Rule varies signficantly. Once the rules are finalized, funding platforms such as CraftFund will need to register with the SEC before investment campaigns can legally begin.
We've received a lot of questions from craft enthusiasts and breweries about what can be done while we wait for SEC final rules. In upcoming blog posts we'll be detailing steps that investors and craft businesses can be taking right now. However, the immediate priority is to build a network of craft beer investors. Join us and spread the word. Participate in the conversation using #DisruptBeer and help us build a unique kind of investor community that disrupts the beer industry!