The JOBS Act Title III vote: today marks the day that the US begins to democratise early-stage investment by opening up equity crowdfunding to (almost) everyone.
American Equity Crowdfunding hits GO!
The Jumpstart our Business Startups (JOBS) Act was signed into law by President Obama on 5 April 2012, having passed through Congress the preceding week, taking almost three-quarters of the Senate vote and 380:40 of the House vote. Although the Act has many different functions, it was the implications that it would have for crowdfunding in the US – which was strangled in regulation – that was most talked about.
The SEC page on the JOBS Act highlights the importance of giving companies access to funding: ‘Cost-effective access to capital for companies of all sizes plays a critical role in our national economy, and companies seeking access to capital should not be hindered by unnecessary or overly burdensome regulations.’
The first equity crowdfunding laws were implemented in September 2013 under Title II of the JOBS Act, which permitted the sale of shares within new companies to be publicly advertised, but restricted the actual right to invest to ‘accredited investors’, or those who had a net worth in excess of $1 million, thereby locking out the everyman.
Nevertheless, Title II was a huge success and saw this brand new capital market shoot from zero to more than $250 million in seed capital within a year.
Although the JOBS Act up to Title II gave some access to crowdfunding to the average Joe, it was far easier and more financially viable for startups to rely on accredited investors for their fundraise.
Today the SEC passed the JOBS Act Title III, which welcomes a new type of everyday investor, who will be able to invest alongside experienced angels and VCs. For the first time, equity crowdfunding is available beyond ‘accredited investors’.
There are some restrictions: the amount that can be invested depends on an investor’s income. Investors earning less than $100,000 will be allowed to invest up to $2,000 or 5% their income in a 12-month period. Those with an income or net worth of more than $100,000 can invest 10%. But make no mistake, the brakes are off equity crowdfunding in the USA.
SyndicateRoom’s CEO and Co-Founder Gonçalo de Vasconcelos has today commented on the news:
‘The UK leads the world in equity crowdfunding. Over 500 British companies have been funded to the tune of around £200 million, powering innovation, creating jobs and more. Today we welcome American businesses and investors to this nascent industry.
‘The approval of Title III of the JOBS Act in the United States is a landmark, and will finally allow ordinary Americans to support and invest in the businesses of their choice.
‘The coming months will see a rush of cash to fund US equity crowdfunding platforms, as they jostle to secure first-mover advantage. Enthusiastic commentators might even forecast the end of conventional venture capital. While the equity investment market will be fundamentally changed, VCs are here to stay, and I expect them to be pushed further up the ladder towards later-stage deals, while equity crowdfunders come to dominate early-stage seed deals.
‘What seems certain with this welcome news from the SEC is that equity crowdfunding is moving beyond the realm of "alternative finance” and going mainstream.’