It could be months before the SEC formally regulates crowd funding, one of the JOBS Act’s most exciting provisions, but some enterprising startups aren’t waiting for a green light from Washington to tap the crowd for capital.

While JOBS has won widespread support with its streamlined IPO provisions, some of the law’s key benefits, including the ability to crowd fund as much as $1 million in seed capital, still have to go through the Securities and Exchange Commission’s (SEC) lengthy rule-making process.

However, the regulatory hurdle hasn’t deterred ambitious entrepreneurs from raising capital from the so-called “crowd.” One notable example is Rally.org, a San Francisco-based company that manages crowd-funding campaigns for social and political causes. Last spring, the start-up secured an impressive $7.9 million in a Series A (the company’s first round of formal funding) largely from the crowd. “We could have used a more traditional approach and knocked on the door of venture capital funds,” Rally.org founder Tom Serres tells The Financialist. “But we are a crowd-funding platform and thought the Series A was an opportunity as an organization to practice what we preach.”

A New Way to Raise Capital

Rally launched its funding drive after securing an initial $3 million from Mike Maples of Floodgate Fund and Reid Hoffman of Greylock Partners, two of the company’s earliest backers. Coming from seasoned venture capitalists, these investments were a critical stamp of approval that helped Rally convince thousands of investors to fund the balance of its Series A, says Serres.

To connect with the crowd, Serres turned to AngelList, a Bay Area website that links entrepreneurs with seed investors. AngelList normally helps raise much smaller amounts, but site founder Naval Ravikant, an important supporter of the JOBS Act, saw the Rally Series A as an opportunity to help establish crowd funding as a viable way to raise capital. The result: During eight adrenaline-filled days Serres and his team logged 28,000 miles crisscrossing the country to meet potential backers, eventually narrowing the field to 18 investors. “While the process itself was intense, it turned out to be an efficient and quick way to raise capital,” explains Serres.

Rally’s nontraditional funding campaign signals a shift in the traditional venture capital (VC) model. Web 2.0 technology lets start-ups connect directly with potential investors rather than relying entirely on the VC community. “There’s this idea that there is not enough capital,” says Serres. “The reality though is that there is plenty of capital, if you’re able to access it.”

And What About Venture Funds?

Though crowd funding is poised to take off, it is unlikely that the new funding mechanism will sideline VC funds. Institutional players will continue to hold a crucial role in sourcing funding opportunities. More importantly, they will also need to continue assessing companies’ business plans for the crowd.

Another JOBS provision awaiting SEC action would allow companies to promote private placement offerings to qualified investors. Currently, SEC rule 506 forbids such marketing campaigns. In Washington, an SEC spokeswoman tells The Financialist that the provision’s lengthy public comments period closed earlier this month, paving the way for private placement ads to debut sometime next year.

Not all of JOBS is in regulatory purgatory. Since President Obama signed the act last spring, a number of companies have raised capital as part of JOBS-regulated IPOs. The provision allows companies with annual revenues of less than $1 billion to delay the implementation of reporting requirements by up to five years, including those outlined in the Sarbanes Oxley Act.

While large portions of the JOBS Act have yet to be implemented, what this investor-friendly legislation already offers is a blueprint outlining the future reality of capital markets – one where entrepreneurs and capital are more connected.

http://www.thefinancialist.com/jobs-bringing-web-2-0-to-capital-markets/