I wonder whether the SEC understands that Title III investment crowdfunding is inextricably linked to social entrepreneurship. It is essential to understanding how a balanced approach for regulation is necessary in this area. Title III is a natural evolution of the rewards-based crowdfunding that has already established itself to be hugely successful and largely free from fraud or abuse. People have used crowdfunding, on a worldwide basis, to solicit and receive billions of dollars in capital for ideas and projects–all without any possibility of an investment return. I don’t think the SEC has any concept of how to think about this and why it is relevant to Title III crowdfunding. Here is an example anyone can relate to: the Girl Scouts sell a tremendous number of $2.00 boxes of cookies for $3.50 (and those cookies are coming your way right now). We do not need government regulators to protect us from the Girl Scouts.
Large numbers of people have established that, when they relate to a proposed project, they will back that project with money without any expectation of a financial return. There is a return on this “investment,” but it is related to the intangible benefit of knowing that you have helped something that you care about get done. I have often compared it to a modern-day barn raising. I predict that there is a much larger group of people who will invest in companies or projects through Title III crowdfunding than those who have already established that they will give money for rewards-based crowdfunding. The Girl Scouts have already proven it. When a Girl Scout comes to your door, they could ask you for a donation instead of asking you to buy a box of cookies. What Girl Scouts know is that a far larger number of us will overpay $1.50 for a box of cookies than those that will simply donate $1.50 without buying cookies. In both instances, the Girl Scouts are getting $1.50 to help their noble cause (note: this is just an example–I do not know what margin the Brownies have on their cookies). However, by selling the cookies, there is a good faith component that shows that the Girl Scouts are doing something and the buyer is getting something back. Here’s the point–it is not an entirely financial transaction. As a complete aside, the Boy Scouts are now falling in line and taking this to an extreme. You know what I mean if you bought the $15 bag of cheese popcorn that I bought this year.