Crowdfunding and Equity, Together at Last (VIDEO)

Eileen Meng Lu |

Title II of the JOBS Act was signed into law by President Barack Obama on April 5, 2012, and went into effect on September 23, 2013 by lifting the ban towards mass marketing of private securities offerings. That means those securities not formally registered with the Securities and Exchange Commission (SEC) are able to raise funding from the public.

The implementation has triggered increased media attention and excitement in small business owners since the Act was proposed. President Obama called Title II of JOBS Act is a game changer that allows "ordinary Americans to go online and invest in entrepreneurs they believe in."

This new video from CrowdCast entitled "Why Private Companies Should Offer Their Stock Publicly" explores this further.

Pete Cochrane, Co-founder of Roster, Inc. said "The way that crowdfunding has been involved in the past two years, and now with Title II, I do see an opportunity for entrepreneurs to fund on the billboard, or on the back of a car or bump sticker."

Cochrane’s team created a profile for their coffee-making business Roster in public fundraising websites likes AngelList and Gust.com to ask for investment last October, after Title II was officially implemented. “Healthbox”, a program based in Chicago that aims to tackle healthcare challenges, chose the company’s portfolio as one of the startup business they wanted to invest in.

Cochrane was very grateful to see Title II allow entrepreneurs the medium that they didn't have before. He saw huge advantages for a startups, saying " it's a lot more transparent for your business plan and your initiatives overall." He said that now he had the chance to publicly announce, "what I am actually seeking; what equities I am willing to give up; where I like to go and what I can do."

The type of crowdfunding that he mentioned had been banned for decades before Title II of Jobs Act legitimized mass marketing for startup businesses. Title II is often referred to with the blanket term “crowdfunding” among entrepreneurs and investors. While the basic ideas are the same, Title II certainly has more limitations.

First, only accredited investors, whose annual income is more than $200,000 ($300,000 for couples) within two years and with the ability to achieve that amount of income in the current year, or $1 million in assets excluding home, may invest in this case. This basically narrows down the possibilities of getting invested because the number of qualified investors is smaller.

Second, issuer of stock must verify that the investor is accredited. This certainly makes it even harder to get funding. In Cochrane's saying, "in order to get somebody investing my idea, there's also some added pressure."

However, the advantages of Title II weigh the disadvantages it brings. Except the fact that entrepreneurs and small business owners have more opportunities to raise funds, for the market, there will be more jobs created.

Jim Stalling, Managing Partner of PS27 Ventures, LLC. Said that in the U.S., small businesses created the most jobs.

“The byproduct, every single time, is jobs.” Stalling talked about the benefits of investing emerging businesses. “There’s health in this country, people believe in this country they believe in this entrepreneur heritage we have, and this whole idea is around,” Stalling pointed out “how do you get ideas?” He said that was how Title II benefited the market in essence, that people get more ideas from being “connected from resources, the money resources and people resources to make the ideas come alive.”

In Stalling’s opinion, when ideas go to the public rather than belong to an exclusive group, there will be more jobs, for sure. Therefore, the public also gets benefit from those small companies or entrepreneurs gaining access to capital and as many resources as possible.

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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