From hype to harness
With the Securities and Exchange Commission working up a dramatic change on how companies can raise cash, few middlemen in Fairfield County appear set to pull the trigger immediately in the new era some have likened to a budding Wild West.
Under the Jumpstart Our Business Startups Act (JOBS Act), the SEC has until early July to write rules governing crowdfunding, which allows startups to solicit capital online. And the new law will let businesses and their capital advisers to advertise as they raise money.
The National Investment Banking Association (NIBA) holds an investment conference in early June in New York City with crowdfunding among the primary topics under discussion.
NIBA predicted an “explosion” of advertising after President Obama signed the bill in April.
Six weeks after the JOBS Act was signed, however, it”™s all quiet on the western front in Connecticut.
“We”™ve heard nothing,” said Howard Pitkin, commissioner of the Connecticut Department of Banking. “I would imagine it”™s more or less everyone waiting for the first one off the runway to do it.”
Pitkin said Connecticut does not need to update any of its own laws or regulations in accordance with the JOBS Act. The Banking Department has been buried in the past year doing exactly that with the Dodd-Frank Wall Street Reform and Consumer Protection Act, a major chore that involved converting smaller investment advisers under the jurisdiction of the SEC to state regulation in the first half of this year.
Several local capital advisers contacted by the Fairfield County Business Journal were reticent on the new rules, though one acknowledged it would have an impact.
“We do think this is a major shift in capital raising for small- to mid-cap companies,” said an executive at one company who asked not to be cited by name. “We do not know how the regulators will respond to the act ”“ they may try to wash it down through their regulation of registered broker-dealers. Crowdfunding may create abuses of small investors, of course.”
The financier”™s company has no immediate plans to advertise in soliciting investments. If local companies do not immediately jump onto the bandwagon with regard to advertising, crowdfunding is expected to generate interest among Connecticut startups that either are not getting preferred terms from venture capitalists ”“ or no offers at all.
According to one estimate, nearly 70 crowdfunding websites were created last year in anticipation of the new environment. Just as a small number of boutique investment banks exist in Fairfield County and elsewhere focused on advising small companies, middlemen will likely emerge to help potential investors size up opportunities on those platforms. Startup Connecticut co-founder Danny Briere recently pondered a crowdfunding portal focused specifically on Connecticut to essentially ride shotgun for any investors in emerging startups.
Connecticut Technology Council President Matthew Nemerson said it could turn out that some entrepreneurs hone their message and terms in discussions with angel investors, then turn to the Internet to actually solicit investments.
“Basically it”™s generating a lot of hype, but I”™m not sure that anyone understands how to utilize it,” said Ken Ducey of Fairfield Capital in Ridgefield. “No one that I know of from a practical perspective has used it to raise money.”