Have you heard of that JOBS (Jumpstart Our Business Startups) Act thing, part of which the Securities and Exchange Commission (SEC) is putting into effect Sept. 23? The answer should be yes, especially if you're an entrepreneur, because it's about to change the way you can get investing come Monday. As with any governmental regulations or legislation, making sense when reading the original text is near impossible. Luckily, you're about to get an overview of the six most important things you need to know about the changes set to begin next week when Title II of the JOBS Act goes into effect.
- Less restrictions on soliciting investments – Seeking out investors has been a very regulated game, but monday that all changes. In keeping up with technology, investors can now solicit investments to companies however they like: via e-mail, on their website, or even on TV. This simply means, it's easier for small businesses and investors to get in touch.
- They still have to be accredited, though – The SEC has kept the regulation that any investors of private companies must be accredited. As defined by the SEC, an accredited investor is "a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person or a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year." Basically, if you're going to deal with single investors, they have to be rich."
- Crowdfunding is about to go NUTS – The lift on restrictions limiting investment solicitations means that now entrepreneurs and small businesses can crowdsource equity (to a point). Yes, crowdfunding has been a way many companies have raised money for products in the past, but it was on a donation basis, and therefore they retained complete control of their businesses, products and services. However, under the changes of the JOBS Act Monday, businesses using sites like Kickstarter or Indiegogo will be able to offer equity in return for investment. Again, though, these would have to be accredited investors, at least until Title III of the JOBS Act, which deals with non-accredited crowdfunding, goes into effect – if it does.
- Investing will happen more online – In a similar vain to the above-mentioned websites, investors and issuers of equity will no longer have to deal in person as much. They will be able to deal more openly online, and therefore new online investing platforms will most likely grow like crazy. Already there are several of these portals, currently limited to accredited investors, like CircleUp, CrowdFunder.com and AngelList. But expect tons more to launch soon.
- Private company shareholder cap is raised – Private companies used to be limited to 500 shareholders before they began feeling the heat to go public. This wasn't good, because the company wasn't always ready to do so. Now, The cap will be 2,000 shareholders. Instantly, the market for private shareholders is going to skyrocket.
- Emerging Growth Companies – A new label for a specific kind of publicly held company, Emerging Growth Companies will ease SEC burdens on companies with less than $1 billion in revenue when going public. Basically it will change three things for them: 1.They will only need to two years of audited financial statements when filing for an IPO, instead of three; 2.they are exempt from having to give shareholders a non-binding vote on executive compensation under the Dodd-Frank rules; and 3. they aren't required to hire an outside auditing firm to check internal financial controls.
So Monday, those changes are planned to go into effect, and it seems that overwhelmingly they will do great things for young, growing companies. It will be exciting to see how the market reacts. You go, JOBS Act, you go.
