There are about to be some new investors in town.
A recent addition to the JOBS Act will go into effect on Monday, May 16th that will change who is eligible to fund small businesses in exchange for equity. The Jumpstart Our Business Startups or JOBS Act of 2012 is a multi-pronged piece of legislation designed to make it quicker and easier for small businesses to gain access to capital. The new addition to the JOBS Act, Title 3, opens up equity crowdfunding to unaccredited investors. In essence, the new rule will increase the amount of money being invested in startups, as it will expand the pool of eligible investors beyond the extremely rich.
Prior to Title 3, only individuals with a net worth exceeding $1 million, or a consistent yearly income exceeding $200,00, were able to invest in U.S. startups through equity crowdfunding. These individuals are considered accredited investors, as defined by the SEC.
Websites like Kickstarter and Indiegogo have popularized the term crowdfunding to refer to donations made towards small, often artistic projects, in exchange for small perks, recognition, or token merchandise. Equity crowdfunding, however, is the real deal. Equity crowfunding under Title 3 of the JOBS Act will allow ordinary Americans — not just millionaires — to make contributions to small business ventures in exchange for actual stock. That, of course, means that investors stand to earn some money, not just stickers or a tote bag.
Richard Swart, chief strategy officer of NextGen Crowfunding, said in a comment to Entrepreneur:
Companies across the United States, for the first time since 1933, will be able to seek investments from ordinary Americans without having to go through the expense and rigor of a full-public stock offering.
This new legislation stands to rejuvenate startup culture, and invite all Americans to not only support small business, but become a part of it.