I never talk politics on the blog here but I must commend the Democrats and Republicans for coming together last week. On November 3rd the Entrepreneur Access to Capital Act (known as H.R. 2930) was passed in a near unanimous vote by the House of Representatives.
One aspect of the bill has changed since it was introduced by Rep. Patrick McHenry. He wanted a $5 million limit on capital raising – that has been reduced to $1 million or $2 million. Here are the core tenets of this bill:
A $10,000 limit per investor (or 10 percent of annual income, whichever is less).
A cap on the amount a company can raise of $1 million per offering (and up to $2 million if audited financial statements are provided).
No limit on the number of accredited or unaccredited investors.
Entrepreneurs Can Raise $1 Million From the Public
The biggest change with this legislation, as I see it, is that entrepreneurs will be able to solicit funds publicly. Right now, if a startup company wants to raise capital from the public they need to register with the SEC – a process that costs around $2 million in legal fees.
When this bill becomes law startups will be able to solicit seed money from their friends, relatives and customers in a public manner. So if a 20-something entrepreneur who has 1,000 friends on Facebook wants to start a company he can announce this to his friends and if a good portion of them kick in, say, an average of $100 he has himself some significant seed capital.
This May Have Big Implications for P2P Lending
While this will not help the regulatory challenges of p2p lending in the short run it could lead to similar legislation some time in the future. You see, this legislation allows entrepreneurs to issue securities to the public circumventing states securities law. This is exactly what Lending Club and Prosper would like. A national exemption for p2p lending so that it can be available to investors in every state.
This legislation came up in my discussions at Prosper headquarters last week and CEO Chris Larsen said he was very encouraged by the support for H.R. 2930. We are still probably a long way off from any meaningful change for p2p investors but this law will at least give some legal precedent for the public issuance of small securities on a national basis.
Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.