Over recent years, crowdfunding has turned into a useful tool for entrepreneurs and businesses to obtain needed capital funding. However, tight securities rules often made this option unavailable to many individuals.
The JOBS Act accredited investors appreciate today was established to fewer securities regulations and to promote private funding of small businesses in the U.S. This made raising capital faster and less expensive and ultimately led to crowdfunding. As modifications were made to the JOBS Act, it enabled more investors’ participation in equity capital contribution to private businesses. Previously, these investments could only be accessed by accredited investors.
As the JOBS Act changes periodically because of exemptions and updates to the legislation, it is vital for businesses and individuals (contributors and acquirers) who operate on both sides of the capital market to remain aware of these changes and understand their options for using and raising capital.
Solicitation and Investment Advertising History
Before the JOBS Act accredited investors utilized today, the initial monumental piece of legislation passed by the federal government about the sale of securities was the Securities Act of 1933. It was established in the aftermath of the 1929 stock market crash to achieve investors’ following goals. These include:
- Setup laws about fraudulent activities and misrepresentations in the securities markets
- Allow greater transparency in financial documents and statements to assist investors in making informed decisions.
This legislation guided the federal government to help recover investor confidence and stability in the markets.
Before 2012, the average individual was not able to invest in private investments. This not only restricted investors, but it also hindered people seeking to raise funds.
When the JOBS Act became law, Title II and Title III changed general solicitation regulations and how businesses can raise funding under certain exempt offerings. This made crowdfunding possible. After Title II went into effect, public advertising or general solicitation in securities offerings was not legal for private businesses in their early stages.
Expansion of Crowdfunding Programs
To foster growth after the Great Recession, the JOBS Act was instituted to enable small businesses and private startups to raise capital and use crowdfunding platforms publicly.
The SEC included Title III of the JOBS Act accredited investors utilize. This opened the way for crowdfunding access by non-accredited investors with a cap of $1 million within 12 months. In January of 2016, funding portals were able to begin registering with the SEC on a new Form Funding Portal.
Raising financing was also made possible by another way through Title IV Regulation A+ rules, with the increase of the amount of money business may raise through short-form public Reg. A+ offerings from accredited and non-accredited investors. Startup companies and pre-initial public offering (IPO) companies can utilize Reg. A+ to raise $20 million or $50 million in 12 months (Tier 1 and Tier 2, respectively).
Also, the JOBS Act certainly accelerated the growth of crowdfunded real estate.
