Liquidity for Equity Crowdfunding Could Come in New 'Venture Exchange' Bill

There are new signs of life in Washington D.C. for equity crowdfunding with non-accredited investors along with related legislation that seeks to bring capital to startups and small businesses. One sign is the draft bill put forth two weeks ago by the House Financial Services Committee in what is being called the “Main Street Growth Act” (draft bill). The proposed bill calls for the creation of what is being called “venture exchanges” – secondary markets where early investors in startups and small businesses could sell their shares, and new investors could buy in and trade these private stocks. A more detailed resource for understanding the proposed venture exchanges and how they might work and create liquidity is the testimony and discussion surrounding the draft bill given in this piece on Venture Exchange Regulations by David R. Burton, Senior Policy Fellow at the Heritage Foundation. Liquidity For Equity Crowdfunding Investors The new proposed venture exchange laws are aimed at increasing access to liquidity for early stage investors in private startups and small businesses (some of which could be JOBS Act enabled investors), as a lack of liquidity was a concern voiced by some surrounding the new laws for equity crowdfunding with non-accredited investors. Investors in technology startups, for example, are likely to have to hold their position in any one investment for an average of 7 years. Creating opportunities for selling private stock in a startup investment sooner through venture exchanges has the potential to reduce some of the early stage investment risks. These new venture exchanges could create markets that allow early investors who invested via equity crowdfunding to trade shares far before any kind of liquidity event like a public offering (IPO) might take place, spelling an opportunity for liquidity for those early investors. The number of IPOs has gone from an average of 311 from 1980-2000 down to an average of 99 IPOs each year from 2001-2011 so opening up other alternatives for liquidity will de-risk the growing number of startup investments happening online.