[SOLVED] Investment Crowdfunding—Regulations and

Investment Crowdfunding—Regulations and Restrictions
Small entrepreneurs today can gain access to public funds through crowdfunding without filing a registration statement with the Securities and Exchange Commission (SEC). Generally, crowdfunding refers to raising small sums of money from a large number of individuals via the Internet. Crowdfunding as a way for businesses to raise equity capital was made possible by the Jumpstart Our Business Start-ups Act, or JOBS Act—specifically, by Title III, also known as the “Crowdfund Act.”
Restrictions on Those Who Invest
The Crowdfund Act imposes certain restrictions on investors. The aggregate amount sold to any investor cannot exceed the greater of $2,000 or 5 percent of the investor’s annual income or net worth if that net worth is less than $100,000. For investors with higher incomes or net worth, the limit is 10 percent.
Other Restrictions
Companies seeking investment funds through crowdfunding cannot offer shares directly to investors. They must go through an online fundraising platform registered with the SEC. Some companies that provide such platforms, such as Venture.com, take an active role in the crowdfunding process, drafting paperwork and soliciting investors. Others, such as Next Seed and Start Engine, take a more hands-off approach. An increasing number of approved crowdfunding portals are available. They usually impose a fee of 5 to 9 percent of the funds raised.
Of course, a potential start-up entrepreneur does not simply create a video and ask people to send money via the Internet. Paperwork must be filed prior to the start of a crowdfunding campaign, and detailed financial statements must be available for potential investors. Indiegogo, Inc., an international crowdfunding website, has estimated that companies spend at least $7,000 on compliance and other regulatory matters before starting a crowdfunding campaign.
The Success Rate
Investors who provide funds to crowdfunded start-ups naturally expect a return on their investment. Consider, though, that half of all new companies are not in business five years after start-up. Consider further that many companies offering investment opportunities via crowdfunding have already been rejected by professional investors. Otherwise stated, these investors did not believe that the companies’ products, services, or management warranted investment.
Thus, the fact that you have shares in a company because you invested in its crowdfunding campaign does not mean that you can do much with them. Those shares are not publicly traded. It may be difficult, if not impossible, to cash out the shares unless the new firm is acquired by a larger company or goes public through an initial public offering.
Critical Thinking
What alternatives are there to crowd funding for a start-up business?

Question: Investment Crowdfunding—Regulations and