It's an exciting time to be a startup entrepreneur! In addition to becoming the new paradigm in the business world and capturing the attention and imagination of the culture at large, recent legislation promises to make it easier than ever to launch and grow your own company. The JOBS Act has been around since 2012, but one major provision, Title II, went into effect in September of 2013.
What's New with Title II?
Title II of the JOBS Act addresses General Solicitation and Accredited Investors. As the blog at VerifyInvestor.com notes, it lifts the ban on general solicitations for small businesses and startups, which had been in place since 1933. Though the ban was initially put in place to help prevent fraud, entrepreneurship and startup culture have changed the global marketplace beyond what was even conceivable more than 80 years ago. It had become incredibly hard for small business owners to find the capital they needed for growth.
Now, thanks to Title II, private companies are free to use public advertising -- such as newspapers, Facebook ads, magazine ads, and direct mail -- to make accredited investors (more on this below!) aware of their business. This opens up investment opportunities from a vastly larger pool of potential investors, as well as making it much easier for startups to find investors and vice versa.
Title II Opportunities for Entrepreneurs
The amendment to the JOBS Act's stand on public solicitation of investors offers a myriad of opportunities to those launching a new business. No longer do you have to reach investors individually or via word-of-mouth, a very time intensive and expensive process, and one that misses a whole category of potential investors that are out of your current sphere of influence.
What does this mean for the U.S. and the global economy? This one adjustment can have far-reaching effects. Now the potential for new products, services, and companies to reach the marketplace is greater than ever before. Using social media advertising, an individual with a good idea and a good marketing skills can raise the funds to start a business without hiring an expensive sales team and spending years acquiring the necessary seed funding.
Investors Benefit Too
Under these new JOBS Act regulations, investors also have new opportunities. Those looking to broaden the scope of their portfolios can now learn about and invest in new private ventures that they wouldn't necessarily have heard about without public advertising. This allows them to choose from a wider range of companies the ones that are most aligned with their interests and values, as well as most likely to succeed and provide a return on investment. Diversifying your portfolio just got a lot easier!
But Who Is An Accredited Investor?
VerifyInvestor.com also goes in-depth to examine the importance of "Reasonable Steps" Verification:
Self-surveys and self-validations are no longer sufficient methods of proving an investor holds an accredited status. Therefore, whether you're a purchaser or issuer, it's necessary to request verification services for yourself or for a potential investor before proceeding with a transaction involving private securities. Not obtaining verification before conducting private offerings can lead to having to return money to investors and/or a temporary ban from certain types of fundraising.
Verification methods can include reviewing personal financial information to verify income or net worth, or enlisting reliable third-party reviewers who utilize licensed attorneys in their approval process.
Other Changes Through the JOBS Act
While the lift of the ban on public solicitation of investors is arguably the most exciting change to the JOBS Act, it is far from the only change. At Forbes, Chris Brummer and Daniel Gorfine have a great overview of several provisions and how they impact entrepreneurs. Among others, they highlight additional changes including raising the limit of a public offering from $5 million in a 12-month period to $50 million, allowing private companies to stay private until they have 2,000 unique investors (up from 500), and creating exemptions for “emerging growth companies” from making certain disclosures that may deter companies from going public.
How has the JOBS Act impacted your entrepreneurial efforts? Join the conversation by tweeting @SparkLabKC!