US Senate passes crowdfunding bill to allow Kickstarter-style investing

The US Senate has just passed a bill that would legalize “crowdfunding” for small businesses. The CROWDFUND Act, an amendment to the JOBS Act bundle that was approved 73 to 26, lowers barriers for investment in companies that haven’t yet gone public. That means that new companies — ideally, the next Google or Facebook — could be funded by small donations from the general public, either through a licensed broker or an accredited portal. In response to concerns that this would make it easier to defraud investors, the Act was amended to include stronger protections and oversight.

In some ways, what the bill would legalize is projects similar to Kickstarter, where a large group of contributors fund an idea. In this case, however, the backers would also get an ownership stake in the company. A companion bill, the Entrepreneur Access to Capital Act, was passed recently by the House of Representatives. The CROWDFUND Act will need to be reconciled to match this bill, then signed by Obama, who has indicated that he will approve it.