Startup Founders Can Now Bypass Venture Capitalists with Crowdfunding

This week Protocol.com’s “Source Code” newsletter described how startup founders could now bypass venture capitalists:Last fall, the the U.S. Securities and Exchange Commission passed a new set of rules for “exempt offerings,” which allow startups to raise funds by selling securities. The SEC acknowledged that its exempt offering rules had become “overly complex” and tried to make them simpler to understand. The new rules increase the amount of money a startup can raise through regulation crowdfunding, which works like ordinary Kickstarter-style crowdfunding but involves selling equity instead of products and thus comes with many more rules attached (though not nearly as many as would apply to your average public company). Reg CF, as it’s known, used to allow a company to sell a maximum of only $1.07 million in securities every year. Starting Monday, that number jumped to $5 million a year. The rules also allow startups to “test the waters,” which means they can talk much more publicly about raising money without actually raising money. These rule changes are probably going to make VCs crazy, since now there are easy ways to loop them out of the super-early fundraising that often brings the biggest windfalls. They also note that Sahil Lavingia, the CEO of commerce platform Gumroad, just raised $5 million in new funding. “He’s also hoping that this modelstart with a lead investor who negotiates and does due diligence, then offer the same terms to the general publicbecomes a go-to move for startups everywhere. “It certainly worked for Gumroad. It hit $5 million in less than a day, with the money coming from 7,513 investors.”Read more of this story at Slashdot.
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