Anyone who needs capital is always looking for ways to attract investors. The rules of making legal investment transactions are covered in the Securities Act. Legislation was passed to amend the Securities Act and incorporate the JOBS Act. This made online funding portals a legal investment vehicle. It also made it possible for finance professionals to raise smaller amounts of capital and not be obligated in the same way as a broker-dealer. These funding platforms aren’t required to analyze opportunity provided by the business. They don’t perform business valuations or seek out investors and more. Most broker-dealers will not handle these types of investments as they are usually less than a million dollars.
According to an article in the Huffington Post, “By approving these rules, the SEC is empowering the average person to help fund the small businesses that they believe in, and gives ideas deemed too risky by traditional sources of capital another chance to make it to the market.”
An online funding portal can help identify the investment needs of a particular entrepreneur. They can then list the investment sales pitch from the entrepreneur. A third party will then be able to manage as well as transfer investments. This third party can be identified as a crowdfund investment portal. They are limited to these activities and anything more would require using the services of a broker-dealer.
A funding portal is considered a crowd-funding intermediary that does not offer advice when it comes to investments. They do not buy or sell securities. They cannot make offers of investment advice or recommendations on a website. They cannot partake in any activities considered to be that of a broker-dealer.
The activities of portal is limited to the internet. These funds can be raised utilizing a funding portal. The funding portal must be a member of the Financial Industry Regulatory Authority (FINRA). A funding portal enables people from any economic background the opportunity to help fund a project they feel has merit.