Heard anything about equity crowdfunding lately? In October 2013, The Securities and Exchange Commission proposed new regulations that will assist in guiding equity crowdfunding. Donors taking part in crowdfunding may eventually be getting more bang for their buck if these rules are implemented.

Startups could soon be able to raise up to one million dollars (within an annual allotment) from online donors. In exchange, these donors may receive company stock.

There have been limits placed on how much donors can invest. Those making or with a net worth below $100,000.00, may only invest $2,000.00 or 5% of their value, whichever amount is higher. However, those with incomes or net worths above $100,000 may invest up to 10% of that value.

Of course, all of these transactions are required to be done through an intermediary for security reasons. This includes funding portals and registered brokers.

While this all sounds great, there are many risks involved in equity crowdfunding. Statistics hover around 75% and higher for startup failure rates. This makes the investment process extremely risky with a stronger likelihood to lose money than to make it.

Several concerns revolve around the one million dollar cap to online donations. Companies are suggesting that this is not nearly enough for a startup. Many are wanting it to be pushed closer to five million before being capped. There are also questions surrounding how it will be regulated.

Additional concerns involve the reporting requirements. If a company raises over $500,000.00 they are required to file certain information with U.S. markets regulators. They also need to provide it to their investors and the online platform enabling their offer.

In the past most private companies didn’t have to share too much information with their investors. These reports could prove costly and deter some companies from participating in equity crowdfunding. This appears to be the most significant barrier to entry.

While these rules were proposed, there is quite a process involved before they can get voted through. Members of the public can comment on these propositions for the next 90 days. Following this period the SEC will review and alter the rules during an additional 90-120 days.

During this time, they may put it up for voting, but even if passed there will be another month or two lag time. Adding all of that up we could be looking at next August before we really see this trend go into effect. Still, this is major progress for equity crowdfunding advocates. Their last triumph was over 18 months ago when the JOBS Act was officially signed.

So that’s what all of the recent hype has involved. Expect to hear much more about this topic as it evolves in 2014.