Today, May 16th, 2018 marks the 2nd anniversary of Regulation Crowdfunding, as part of the JOBS Act. It’s really a momentous occasion because it allows anyone to invest in private companies, not just the rich. Continue reading this post to learn about The JOBS Act and how you too can become an investor.
What is the JOBS Act?
The JOBS Act is an acronym that stands for The Jumpstart Our Business Startups Act which was signed into law by President Barack Obama on April 5, 2012.
It is a law intended to encourage funding of United States small businesses by relaxing the various restrictions around how individual investors like you can invest in private early-stage companies. There are two parts to the JOBS Act – Title II and Title III.
1) Title II went into effect in 2013 which allows a startup to publicly advertise that they are raising money. This was against the law since 1933 which meant entrepreneurs and small private businesses were not allowed to advertise that they were raising money.
Historically for a young private company to raise capital it needed to have a pre-existing relationship with its investors, for example, people that were friends or family of the company’s founders and that might help explain why you haven’t had too many opportunities to invest in private companies before but Title II of the JOBS Act lifts this restriction about advertising.
Now early-stage companies, like Calroo, can advertise publicly that they are accepting new investors. They can specifically post their deals on special websites known as equity crowdfunding sites, e.g. WeFunder. These websites provide a platform between entrepreneurs looking for capital and investors like you who are looking for early-stage investments that have big upside potential.
2) Title III went into effect on May 16th, 2016. It allows all investors, regardless of their income or net worth to invest in early-stage private companies.
In the past, you were only allowed to invest in small businesses if your salary was more than $200,000 a year or your net worth was $1 million plus. This is no longer the case which means anyone can become an investor.
Who Can Invest?
Anyone can invest in crowdfunding offerings. However, you are limited in how much you can invest during any 12-month period in these kinds of securities. These limits depend on your net worth and annual income:
If either your annual income or your net worth is less than $107,000, then during any 12-month period, you can invest up to the greater of either $2,200 or five percent of the lesser of your annual income or net worth.
If both your annual income and your net worth are equal to or more than $107,000 then, during any 12-month period, you can invest up to 10 percent of your annual income or net worth, whichever is less, but not to exceed $107,000.
Say your annual income is $150,000 and your net worth is $80,000. JOBS Act crowdfunding rules allow you to invest the greater of $2,200 or five percent of $80,000 ($4,000) during a 12-month period. So in this case, you can invest $4,000 over a 12-month period.
Why is The JOBS Act celebrated by entrepreneurs and investors alike?
The JOBS Acts’ aim is to revitalize capitalism and keep the American dream alive. It’s a win-win for entrepreneurs and investors alike.
With as little as $100, you can proudly invest in a startup if you believe in the company’s mission and product. Who knows, it could be the next Facebook or Uber! For an entrepreneur, Title III, allows their startup to raise up to $1 million per year from their friends and supporters. Companies can be funded as they were 80+ years ago: by their friends, neighbors, and communities.