Home > Uncategorized > The US Crowdfunding JOBS Act: How it will impact you in a nutshell

The US Crowdfunding JOBS Act: How it will impact you in a nutshell

The Jumpstart Our Business Start-ups law or aptly named JOBS act has shaken the crowd funding industry in the US and created a whole lot of buzz in Europe too. We in Europe also anticipate a similar act being passed by our governments as they continue to battle with historic deficits, high unemployment, Moody’s downgrades and the constant threat of sovereign default.

On March 22, the JOBS Act was approved by the US Senate in a 73-26 vote and President Obama has since signed the act into law. This law was an excellent show of of bipartisan support which we see on very rare occasions within the US Senate.

Here’s what the law means in a nutshell and this is how it will affect you as an entrepreneur or an investor:

  • Crowd funding is now ‘kosher’ and available to the ma and pa on the street, this means even your mom can invest in crowd funding! The Act stipulates that entrepreneurs can raise up to 1Million per year through approved channels and the aim is to protect investors from possible losses by limiting the amount one can invest by tying it to their incomes. For example., investors with incomes of 100k or less will be limited to 5% or $2k of investments while those making over 100k/year will be limited to 10% or $10K
  • Companies can now get a longer grace period before having to report financial data on their operations. This is great for small companies which are easily impacted by the high costs of financial accounting and audits and this means they can invest their capital back into their businesses instead of enriching the accounting firms! In fact, the act allows them to sell up to $50million in shares and can have as many as 1k shareholders before even considering going public. This is a welcome relief and a real jump starter for companies to raise capital without the associated fees and regulatory requirements for going public.
  • Crowd funding sites will also be required to provide their users with financial education materials which will help to inform them and give them an idea of the risks that they take by investing in crowd funding. This means an increased responsibility on the part of sites to ensure as far as possible that investors understand what they are undertaking.
  • The act creates the term’ intermediaries’ which will be the online portals used for the process of crowd funding. The Act specifies that the portals must not give investment advice or solicit for investment and must not pay compensation based on sales. This is an interesting requirement and will mean that the crowd funding portals out there will have to make changes to their core platforms to ensure that they are compliant. They will also need to be registered in future but in a more streamlined manner. This will also mean that well known portals such as Kickstarter may have to change their revenue models to be compliant: what this means for their market share and continued success, only time will tell.
  • The Act also gives investors in crowd funding platforms the right and the ability to bring a civil action against an issuer for material misstatements or omissions. This will bring greater accountability within the crowd funding sector as previously, issuers were not subject to such stringent standards. This will mean that the businesses listed on crowd funding platforms will have to do more to explain their business models and provide more detail to investors before they can part with their investment funds.

Overall, there are rumblings in the sector with commentators saying that the act will only serve to ‘Ghettoize’ crowd funding as it will become available to every Tom, Dick and Harry. While ON the other hand, others have praised the new protection standards that have come in as being way overdue.

All in all, the passage of the act has really helped to raise the profile of crowd funding as not just a passing fad but as a key to stimulating the US economy and helping small businesses raise capital without having to resort to the Venture Capitalists. It remains to be seen if the act will lead to a boom in crowd funding or have the opposite effect. Either way, this act has served us well in this industry by showing just how relevant it is and its importance in creating businesses, employment and contributing to the growth of the US economy.

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