The JOBS Act: Will Funding Portals Matter?

William Carleton, Contributing Editor, VCExperts

A central feature of the equity crowdfunding legislation in the JOBS Act is the concept of a "funding portal," a Kickstarter- or Rockethub-like platform, if you will, through which all equity crowdfunding must take place. (Unlike deals restricted to accredited investors, issuers would not be permitted to sell directly to the crowd.)

Funding portals would be regulated, but the implication was that funding portal compliance would not be nearly as complicated as broker-dealer registration and compliance.

That was the idea.

As the nascent equity crowdfunding industry sorts through how to organize itself, more and more participants are signaling they have come to the recognition that being a funding portal won't get them where they want to be. So they are aligning with broker-dealers, or planning to go ahead and go the extra hundred yards and become broker-dealers themselves. Apparently, it is dawning on everyone that funding portal registration will not be simple, and that funding portal regulation will be highly restrictive as to what a funding portal can do.

Quick example I've heard about: a participant who has concluded that UX design, or really any feature to organize how deals are presented on a portal, is going to be regarded by regulators as "investment advice." Funding portals can't give "investment advice." Broker-dealers can.

Permitted compensation is a factory in this, too, I'm sure.

Anyway, long build up by way of suggesting that you read Jonny Sandlund's post of 10/23/12 on thecrowdcafé.com, where he begins to inventory what players in the nascent market are planning to do. His post is titled, "Crowdfunding Platforms and Broker Dealers: An Evolving Relationship."

And by the way, Jonny has announced he will be offering a free webinar, "Making Sense of the Equity Crowdfunding Industry." Go here for details.

Photo: DanR / Flickr.

William Carleton

Bill is a member of McNaul Ebel Nawrot & Helgren PLLC, a Seattle law firm. He blogs every day at