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Want to Buy Stock in Your Corner Bistro? The Government Opens Venture Capital Markets to the Masses

Part four in a four-part series on the sharing economy.

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In 2008, the online platform, Indiegogo, created a new way for entrepreneurs, artists, and charities to raise funds for their passion projects known as "crowdfunding." In exchange for donating money to a project, users generally receive a "perk," like a t-shirt or a coffee mug. In 2009, Kickstarter got into the game, and today new ventures get launched everyday thanks to the significant capital raised through these websites.

Orapup, which sells tounge scrapers for canines, raised $62,572 on Indiegogo. |||

But what if instead of free DVDs and tounge scrapers for your pet new companies could offer their funders an equity stake in the business itself? Security regulations dating back to the 1930s have made it difficult for companies to trade equity for cash. But two years ago president Obama signed the U.S. JOBS Act, which is supposed to open venture capital markets to the masses.

Indiegogo plans to open its platform to these sorts of deals. The company's co-founder, Danae Ringelmann, says equity crowdfunding will allow regular people to make investments based on their direct knowledge of specific industries. "There's a whole world of people who know what they know, but they don't have the ability to invest in what they know," says Ringelmann. "Equity crowdfunding is going to give mainstream investors the same opportunities that Wall Street has had forever."

BugASalt, which sells a shotgun that uses salt to kill flies, raised $577,636 on Indiegogo. |||

But will Washington actually allow this new approach to work? It took a full year and a half after the passage of the U.S. JOBS ACT for the Securities and Exchange Commission (SEC) to release a 585-page document laying out how it will regulate equity crowd funding. Among other things, companies that want to raise money on platforms like IndieGoGo will have to produce financial statements, provide "a narrative discussion of financial results," and file annual reports with the SEC. Compliance costs could chase away lots of promising ventures. And in a world of open information, why do we need the SEC getting in the way in the first place?

"If the SEC can just stay open and allow the platforms to experiment," says Ringelmann, "I think we'll get there."

Click here to watch Reason TV's entire series on the sharing economy.

About 3:21.

Written, shot, and produced by Jim Epstein.

About 3:21 minutes.

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