For companies that want to match start-ups with small-time investors, today is the first day to ask for permission from federal regulators -- and one local firm wants to be at the front of the line.
Santa Monica's StartEngine plans to announce this morning that it has applied to the Securities and Exchange Commission to become a registered funding portal. Those portals will act as stock exchanges where, starting in May, small companies will be able to sell shares directly to the masses.
Like Kickstarter and other crowdfunding sites, portals will for a fee list businesses looking to raise cash. But there's a big difference: Money given to a company through a Kickstarter campaign is a donation often rewarded with a company's product; money given through an SEC-approved portal buys an ownership stake.
StartEngine is already a player in other types of equity crowdfunding geared toward larger companies and wealthy investors.
Since 2013, companies have been able to go online to solicit investments from so-called accredited investors -- those with a net worth of a least $1 million or annual income of at least $200,000. The new rules will let anyone invest, even if they don't meet those criteria.
Howard Marks, StartEngine's executive chairman, said he wants to get into this new market, which he thinks could prove to be big business.
"Anyone with an idea can put themselves out there and raise money," he said. "It's the true democratization of capital."
The new crowdfunding rules, approved by the SEC in October, will allow private companies to raise up to $1 million a year from small-time investors. And they won't be required to do the kind of reporting and auditing required of bigger companies or firms raising larger sums.
The relaxed rules are part of the JOBS Act, a 2012 law championed by President Obama to boost start-ups. But critics say the new rules could prove to be a bad deal for small-time investors who are less savvy.
Marks said registered portals will have to check that companies are properly incorporated and are not obviously scams, but that it will be up to the SEC to go after companies that try to commit fraud.
In October, just before approving the new rules, SEC Chairwoman Mary Jo White said the commission's staff members "will begin immediately to keep a watchful eye on how this market develops."