While the rules implementing retail investment through crowdfunding — Title III of the Jumpstart Our Business Startups (JOBS Act) — had a slow road into the spotlight, crowdfunding is finally here, and that may be good news for law firms.
The rules were passed as part of the JOBS Act in 2012, but it took until 2015 before they were fully fleshed out on paper, before finally becoming effective this week, on May 16. Now, numerous companies can take advantage of the new rules, raising capital for their business from retail investors.
And while many investors, politicians, business leaders and government regulators will be watching to see what comes of all this, another set of eyes watching the potential crowdfunding wave is the legal industry.
Law firms should be quick to realize the new business opportunity that a fledgling (and growing) crowdfunding market may offer, as potential clients — such as consumer product companies, women- and minority-owned businesses, and even local brick & mortar companies — seek assistance to navigate the new rules and stay in legal compliance with regulators at the companies raise capital from retail investors.
Finding Receptive Clients
Given the high stakes involved in such capital raising for smaller businesses, it would be little surprise that law firms may find very receptive clients who suddenly realize they need legal, regulatory and compliance expertise in readying a crowdfunding offering. In addition, so-called intermediary companies — those platforms set up to help facilitate crowdfunding investment — will also present a unique set of legal and compliance issues that could mean new business for law firms.
In a recent article in Crowdfund Insider, writer Georgia P. Quinn outlined the new rules for crowdfunding and discussed what type of company or business could benefit from using the innovative capital-raising method.
“Title III crowdfunding is not for every company seeking financing,” Quinn writes. “In fact, companies that can raise funds using less regulated means should do so. However, Title III crowdfunding opens up financing opportunities for many types of businesses that have traditionally been denied other means of capital. In addition, there are certain business types that lend themselves to the medium of crowdfunding and are more likely to be successful using this strategy.”
Thomson Reuters’ Legal division is collaborating with “Crowdfund Insider” to publish a series of articles about the recent regulatory changes in the crowdfunding industry. The themes include JOBS Act Title III overview, global regulatory framework, and future regulatory improvements for existing crowdfunding regimes.
Some of the areas that law firms could find clients eager for legal insight into the new rules include:
- consumer products companies;
- affinity companies that have developed a loyal following;
- local brick & mortar businesses eager to tap the capital markets cheaply;
- women- and minority-owned businesses; and
- businesses in the middle of the country that cannot easily access Wall Street.
While predicting steady growth in the crowdfunding industry, Quinn pointed out the need for education for both investors and issuers. She also said there is an element of the unknown to crowdfunding, as there would be on any innovative mechanism before it can establish a track record of success.
“The most important insight I have, however, is that the problems people are projecting are not the problems that will impair the industry,” she writes. “All of the concerns over disclosures, cap tables, investment limits, etc. will be, and many have been, solved. The real problems with this new industry and set of regulations are unknown to us and will only be uncovered in practice.”
Safe to say, the eyes of the legal profession will be watching crowdfunding develop too, with a keen look out for fresh business opportunities and new clients.