New SEC Rules to Allow Companies to Crowdfund Investment

Andrew Harrer/Bloomberg via Getty Images
The U.S. Securities and Exchange Commission (SEC) headquarters in Washington, D.C.

Crowdfunding has been a popular buzzword in the music industry for the past half-decade, with companies like Kickstarter, Indiegogo and GoFundMe, which opened up new avenues for artists to raise money for their projects, whether a new album or to bankroll a tour. The concept has traditionally relied on a mix of creativity, popularity and fan devotion to function, with backers incentivized through rewards, largely based on how much they donate to a cause. But a new set of rules adopted by the SEC today will allow startups and small businesses to accept crowdfunding in exchange for equity in the company, the first time the federal government has introduced regulations to allow companies to seek financing from non-accredited investors in exchange for securities.

The new set of rules will benefit any small company or startup, with a few caveats. From the business' side, they're capped at generating $1 million through crowdfunding during any 12-month period, and $100,000 from any one individual. But backers now no longer have to be accredited investors, defined by the U.S. government as an individual with an income of at least $200,000 per year or a net worth of at least $1 million. Now, anyone who brings in less than $100,000 per year can invest in a crowdfunded campaign to the tune of $2,000 (or five percent of their net worth, whichever amount is higher), opening up a much larger pool of potential investors for companies looking to get off the ground.

Obvious benefits aside, these new rules could once again shift the way artists release music or raise money to chart a tour, or even help redefine the concept of ownership of music. Fans would be able to become stockholders in their favorite indie labels, for instance, or help finance their favorite music platform as it gets off the ground, though the rules wouldn't apply to one-off albums or tours -- any revenue generation that doesn't end with backers receiving, debt, equity or derivatives.

Regardless, the new rules open the door for fans to turn become business partners with a financial interest in a label's success, for example, providing another way to support artists without the charitable concept of current crowdfunding. In that way, these rules are the SEC regulating an industry that has already begun to emerge over the past two years, as new companies attempt to adapt and twist the Kickstarter model to allow fans to subscribe to an artist to receive access to a catalog, a la Bandcamp, or to financially support an artist on a rolling rather than project basis, like Patreon.

Probably the one company that is closest to this model already is TapTape, a relatively new platform that allows its users to literally invest money in artists on its platform in exchange for Kickstarter-esque bonuses, but that also has provisions for investors to receive profits on successful projects. Those profits currently come in the form of TapCoins, which can be used to purchase concert tickets or artist merchandise through TapTape's site, rather than cash.

The rules are scheduled to take effect on Jan. 29, 2016.


The Biz premium subscriber content has moved to

To simplify subscriber access, we have temporarily disabled the password requirement.