Title III JOBS Act
Title III of the JOBS (Jumpstart Our Business Startups) Act, which expands the capabilities of equity crowdfunding platforms by allowing non-accredited investors the opportunity to privately invest in companies, came into effect on May 16th. This is a major change for the early-stage venture capital industry, entrepreneurs, and retail investors, as the pool of potential investors has swelled. This should provide a capital infusion for new businesses that do not fit the mold for a traditional VC. This also creates new opportunities for investors to invest in young companies for equity, rather than a product or special pricing.
Highlights:
- equity crowdfunding transactions by a non-accredited investor must now take place within a SEC-regulated broker-dealer or funding portal
- limits on the amount a company can receive within a year, meaning that fundraising cycles will become shorter.
- investors making less than $100,000 per year can only invest up to 5% ($2,000) of their annual income through crowdfunding; those above $100,000 per year can invest up to 10% of their annual income, but no more than $100,000
- companies must now disclose a more extensive amount of information concerning the company and its financial data
- non-accredited investors are only able to sell their shares after one year. However, an accredited investor may purchase shares, if necessary, from a non-accredited investor prior to one year
