Crowdsourcing has become the norm for many different business functions, from administrative tasks to software development to other IT projects. For some companies, it even plays a role in risk management. But it may soon play an even bigger role in raising capital.
The Wall Street Journal reported last week that the Securities and Exchange Commission is considering the benefits of allowing small but fast-growing businesses to use social networking tools like Facebook and Twitter to offer very small amounts of shares to individual investors. The approach has often been employed by artists or entrepreneurs with websites such as Kickstarter.com, but this is the first time the idea has been seriously considered by regulators in the 21st Century.
The story cites a letter SEC Chair Mary Schapiro recently wrote to lawmakers this way:
The agency has "been discussing crowd-funding and possible regulatory approaches" with small-business representatives and state regulators ... A petition calling for the securities rules to be eased for crowd-funding share issues of up to $100,000 has been backed by almost 150 organizations and individuals.
However, Schapiro also made clear that any relaxation of the rules must be accompanied by adequate safeguards to protect investors from the "enterprising fraud operators" common in the 1990s.