Winds of Change in Entrepreneurial Finance

The impact of new SEC JOBS Act rules?What was intended when President Barack Obama signed the Jumpstart Our Business Startups (JOBS) Act on April 5, 2012, is here. It has taken three years to start thanks to the SEC taking its time to put out its regulations, but for the first time in 82 years, anyone with capital can invest in any private business in the country. Nonaccredited investors and anyone who is not a millionaire, which is to say 98 percent of the population, can put hard-earned money to work helping entrepreneurs build this country back to where it was years ago when that privilege was taken from them by the 1933 Securities Act.

What does that all mean to us business people young and old. It means that the securities business as you know and remember it will change forever. It will become “democratized.” Investing in the American Dream will be available to anyone.

The Internet will play a bigger role than the present broker/dealer establishment. Businesses can now advertise for investors on the Internet using whatever means available including email, Goggle, Facebook and  Twitter.

In the past anyone could invest in a public company, but choices were limited because there are only about 20,000 public companies to choose from in the U.S. The new law expands the investment choices dramatically because there are over 5 million private companies in the country.

Imagine working as a young entrepreneur and learning your market for capital has just exploded. Everyone can take that giant leap of being his or her own boss now that capital is available.

Have you ever wondered why some foreign countries were growing so fast and producing so many new businesses? One answer was that they didn’t have to contend with laws like we had on the books, which said you have to be a millionaire to invest in private companies.

The 1933 Securities Act required investors to be accredited, meaning they had to have:

  • earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, with reasonable expectations of the same for the current year; or
  • a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence)

Individuals who didn’t meet this “accredited” definition could invest in a friend’s or family member’s private business if there were 10 or less investors. The government wouldn’t mind or prosecute. Sometimes, up to 35 unaccredited investors could invest in a deal alongside accredited investors, but the unaccredited investors couldn’t make up the majority of investors.

Doesn’t that old law seem so silly now that you see the implications of what is going to happen to our wonderful new economy?

I say, “Let the games begin.” Let’s show the world how our version of capitalism really works.

Editor’s note: On March 25, the SEC announced its new JOBS Act rulings, which come under Title IV of the act and will be carried out through so-called Regulation A+ investment offerings. The new Title IV rulings / Regulation A+ offerings will go into effect roughly 60 days after the March 25 announcement, following publication in the Federal Register.

 

 

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