Stalled Crowdfunding Rules Leave Business Plans on Ice
By Angus Loten, December 12, 2012
Scott Schroeder needs financing for his small electronics assembly business to hire more workers amid a recent surge in demand for its services. His bank recently refused to increase the Oregon company’s credit line, forcing him to consider selling equity in his company to dozens, and possibly hundreds, of investors online.
Leah Nash for The Wall Street JournalScott Schroeder aims to sell online stakes in his Mega Tech of Oregon.
Online solicitation of unsophisticated investors currently is barred under federal securities law. But Congress in April passed a new law that would allow “equity crowdfunding,” allowing entrepreneurs like Mr. Schroeder to more easily get money for their businesses.
Under the so-called JOBS Act, Mr. Schroeder and other small and medium-size businesses would be able to raise as much as $1 million each year by selling shares in their business online, without the costly and burdensome process of registering with the U.S. Securities and Exchange Commission.
Mr. Schroeder says his Corvallis-based Mega Tech of Orgeon intends to be a pioneer. He hopes to raise at least $500,000 for his 35-employee plant through online connections with potential investors on the Web. “I’m looking for money to grow, but banks aren’t willing to take any risks,” he says, adding that he will “gladly give out equity” to get capital.
He would like to add as many as 15 assembly workers to meet the demands of high-tech startups including medical device and touch-screen payment product makers cropping up in nearby Portland, Ore. “We have underutilized equipment and want to fill that capacity,” he says. Mega Tech did about $6 million in sales in the last 12 months.
What’s holding him back? Right now, it is unclear what will be possible under the law and what kind of information he would be required to provide investors under the still-to-be drafted rules.
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