The SEC, Securities and Exchange Commission, quietly released a revision of the 1933 Securities Act that regulated how businesses raise funds through equity and how individuals can invest. I know the original Act itself sounds onerous to most of my fellow libertarian-minded colleagues, but this was really needed back in 1933 and the revisions are nothing less than amazing in 2015.
First, the 1933 Act put a whole lot of snake oil salesman out of business and protected a lot of simple folk from being bilked out of their life's savings. To start with, it required businesses to register with the commission to keep an eye on them. And it prevented them from using wide-scale advertising for investors. If you wanted to invest, you had to work through registered/accredited agents like accountants and professional investors. The investor also had to be accredited having a net worth that was deemed sufficient to protect you from ruin should the venture fail. I know this sounds like big brother protecting folks. But keep in mind, this was 1933, the height of the Great Depression and people were desperate.
Fast forward to 2012 and something amazing happened - crowdsourcing and crowdfunding. The SEC correctly recognized that the internet allowed vast access to capital for small businesses and that crowd could help vet businesses, adding a layer of protection for investors. And so, Jobs Act Title II was passed allowing businesses to cast a wide net on the internet to solicit investment for equity. The investors and businesses, however, were still required to be accredited. The intermediary like WeFunder.com, likewise and rightly, needed to be accredited by the SEC. And the SEC spent the next 2-3 years taking comments from players, monitoring progress, and developing something truly amazing, Jobs Act Title III.
Jobs Act Title III of the 1933 Securities Act, effective May 16, 2016, allows nearly anyone to invest in nearly any business through an online intermediary. This includes NON-accredited investors with minimal income and assets. There are some rules to follow such as registration requirements for all involved. But they don't represent a major hurdle and the onus is on the intermediary crowdfunding sites to maintain. In this Act, folks making less than $100,000 per year can invest the greater of $2,000 or 5 percent of the annual
income or net worth and 10% of the annual income or net worth
of an investor, if either the
annual income or net worth of the investor is equal to
or more than $100,000.
This is huge! Investment is no longer the advantage of a privileged a few and any great product or business can seek funding - even concepts. Those tired, dated, and arrogant Angels and VCs, most of whom know nothing about your product or industry, will now have to take a back seat to the general public.
By example, if you have a great concept but lack the funds to create a prototype, the crowd can invest. You don't need to spend time developing networks and risking exposure of a great idea to folks with deep pockets. Alternately, if the concept sucks, the crowd is sure to let you and every other potential investor know why. As an investor you can invest as little as $100 in as many projects as you like. And you don't have a to have a bucket of cash and can spread the risk around by investing in several projects. You might even get a piece of the next Apple.
Of course there are requirements in the 772 pages of required reading including a well-designed business plan and strategy and review by accredited third parties. This is what we do. We align your product with the market and SEC requirements to increase your chances of being funded. One analysis can validate your product features, target market, identify cash needs in a format required by the SEC for equity crowdfunding.
What are you waiting on?
GJC Business Strategy Consulting
860-970-2645
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