SEC Rule Could Boost L.A. Tech InvestmentsFriday, September 27, 2013
In an emerging technology community like Los Angeles where funding is critical, a regulatory change is giving companies a voice.
The Securities and Exchange Commission last week lifted an 80-year ban on general solicitation that forbade private companies from publicly advertising for fundraising. As a result, many L.A. startups are expecting to benefit.
Many of the boosters of the new rule are companies that have the most to gain from relaxed investment regulations.
Take Crowdfunder, a Venice company that acts as a platform for brokering deals among investors and technology startups or small businesses raising money. Now that companies can advertise deals, Crowdfunder could see a boom in the number of deals listed through its site.
"This creates a much broader distribution channel," said Crowdfunder Chief Executive Chance Barnett. "This has the potential to take people who might not even know that they qualify to invest and make them more aware of what small businesses are doing."
But the change has a double edge: It also requires more work verifying that the money comes from legitimate sources. Some fear it could scare off some angel investors.
Still, the change could have an outsized impact on L.A.'s so-called Silicon Beach. The new rule allows private companies – including old and established companies – to advertise to sell their stock. L.A.'s large contingent of fast-growing tech startups is hungry for money and could be fertile ground for new investment, especially since many of them are creative and could be particularly effective at soliciting investments.
The full story will appear in the Sept. 30 edition of the Business Journal.