The U.S. Government recently passed Title II of the JOBS Act, legalizing general solicitation, (marketing), for private securities (private companies). This monumental deregulation of Securities Laws grants companies greater flexibility when prospecting potential investors.
Crowdfunding involves fundraising via security offerings directed to the general public. Under previous securities law, this was considered a “public offering” that must be registered with the SEC. The Securities Act of 1933 erected a barrier to this type of offering, limiting investment capital from prospective investors. The JOBS Act opened options to private companies, allowing them to raise capital from the public through crowdfunding offerings, and through private offerings conducted with general solicitation or advertising.
Furthermore, the JOBS Act reforms will increase opportunities for investment for both accredited (net worth >$1M or annual income of $200,000+) and non-accredited investors. Up until this point, non-accredited investors were barred from investing in early stage companies. Under the new law, non-accredited investors will be able to invest up to $2,000/year or 5-10% of their net worth in investment opportunities of their choice. Furthermore, crowdfunding platforms can use technology to post and promote these offerings to the general public. All in all, the reforms will permit market innovators to transform how private companies raise capital in the United States.
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For more information on the JOBS Act which will go into effect September 23rd, 2013, you can reach the SEC Amendments Rules here.
