A Boston-area startup has raised more than $3 million in less than 24 hours–but so far, it's illegal.
Cambridge-based WeFunder, which would help anyone invest small amounts in start-ups, needs Congress to change the law before the company can launch officially.
Although crowdfunding is legal for charities and projects where those donating get no ownership–think Kiva or Kickstarter–currently startups can only take money from accredited investors, such as venture capital firms or venture banks. The Securities and Exchange Commission also limits the number of investors a company can have without going public.
What the pending legislation would do is amend the Securities Act of 1933, which was enacted four years after the 1929 market crash. It was designed both to protect investors and to spur U.S. business.
“The existing rules around who counts as an ‘accredited investor’ are antiquated and wrong,” Dharmesh Shah, founder and CTO of HubSpot, told BostInno. “I can understand the desire to protect blue-haired grandmothers from smooth-talking shysters that will milk them of their $300,000 in retirement savings. But, that’s not what we’re talking about here. We’re talking about a maximum investment of $1,000.”
More than 1,100 would-be investors have signed WeFunder's petition urging Congress to pass the bill, called the Democratizing Access to Capital Act of 2011. (Yes, a lot of the signers are entrepreneurs.) If it's passed, start-ups will be able to raise up to $1 million through crowd-funding. The company launched Monday hoping to get $100,000 from 100 pledges.
The bill passed the House in November with a rare showing of bipartisan support. On Thursday, the Senate Small Business and Entrepreneurship Committee meets, the next step on the road to the bill's approval (or, of course, rejection) in the Senate.
"I'd love to give a small portion of my income to entrepreneurs changing the world, rather than blowing it in Vegas, or investing in GE," one of the company's three founders, Nicholas Tommerello of Escapist, told Business Insider. "I want to invest in start-ups, and I'm frustrated that I can't. I think I can add some wisdom to go along with my $5,000/year, and get the feeling that I am helping startups change the world."
The company's other two founders: developer Nick Plante and Daniel Sullivan, founder of crowdsourcing startup Crowdly.
Want to sign the petition? Click here.