Many of you are well aware of the fact that the Jumpstart Our Business Startups (JOBS) Act was signed into law by President Barack Obama on the 5th of April, 2012. Since then, there have been debates throughout the nation concerning the way this new Act will change the way people and organizations will go about raising money for their startup venture. Industry experts have expressed serious concern with regards to title III of the JOBS Act, the CROWDFUND Act. This new Act has provisions that allow small business owners and entrepreneurs to make use of different online platforms and social networks to sell a limited equity amount to the investors.
Before the enactment of the Crowdfunding Act, it was illegal to sell equity interest via crowdfunding under the American securities laws. The JOBS Act is an attempt towards exempting crowdfunding projects from the expensive and stringent requirements of registration, compliance and reporting. It will also allow different crowdfunding platforms to avoid being classified as a broker. This, however, would cost these websites substantially for their registration process. The JOBS Act is also expected to open up new avenues for small business owners through equity crowdfunding. On the other hand, the investors can also diversify their potentials in new ways brought about by the Jumpstart Our Business Startups (JOBS) Act. However, in spite of these positives, there has been widespread apprehension relating to the future of crowdfunding after the JOBS Act is fully implemented. Unfortunately, some of these apprehensions are completely justified.
There is no denying the fact that the JOBS Act is certainly a commendable step forward. However, it also appears that this new law will actually restrict the growth of crowdfunded startups because it will limit the fundraising options available to them beyond the traditional routes. The Title II of the Act is about the legalization of raising funds publicly, a practice that has been outlawed more than eighty years ago in 1930. This was done to allow prospective startups to make use of email, social media, or even street corner signs to promote their new equity crowdfunding venture, provided they invest the funds via any crowdfunding portal.
Many startups we have come across feel that grasping the details, and even the concept, of Title II is convoluted and a little tricky. Theoretically speaking, this section is expected to create new investment leads. However, contrary to this expectation, it has been observed that the provisions of the Act are creating an additional financial burden for a number of budding organizations. According to Title II, startup ventures are responsible for investor affirmation. Meaning, it is their job now to ensure that they stay within the limits of individual investment by auditing the investors. Unfortunately, these audits can be financially demanding for a startup. The common term for this group of potential equity crowdfunding investors is known as “qualified investors” and it can be a murky swamp to navigate all by itself.
Honestly speaking, this discussion can go on for hours without coming to a concrete conclusion. Only time will say how the Jumpstart Our Business Startups (JOBS) Act changes the way crowdfunding industry operates in the future.
Regardless of changes that crowdfunding may undergo in the days to come, CrowdFund Buzz will always remain committed to helping you turn your dream venture into reality and be there to guide you through the JOBS act with our second-to-none crowdfunding consulting services.