The long awaited Title III of the JOBS Act goes into effect Monday, May 16th.
With Title III comes the latest in equity crowdfunding laws that permit non-accredited individuals to invest in private startups and small businesses. Investing was previously restricted to wealthier accredited investors and institutions only.
Title III was originally viewed as a potential game changer for fundraising and access to capital, opening up a new and promising avenue for young startups seeking capital.
As CEO of Crowdfunder, my early work with a small leadership group in Washington D.C. on the JOBS Act legislation had me hopeful that new regulations could greatly increase the opportunity for early-stage business owners to raise capital efficiently online while also democratizing the access to investing for everyday citizens.
Unfortunately, the final rules under Title III are somewhat limiting and inefficient, given their intent. I believe that Title III will be a disappointment to entrepreneurs in their cost and requirements. Additionally, I believe we will see some adverse selection around Title III offerings, given that early indications in the market are showing that the majority of high-quality startups that receive investment from experienced Angels and Venture Capital firms are holding off and may avoid utilizing this new equity crowdfunding alternative.
Before I delve into why, let me provide some background on the JOBS Act and Title III.
JOBS Act Background
The Jumpstart our Business Startups Act (JOBS Act) was signed into law by President Obama on April 5, 2012, and represents an easing of security regulations intended to increase the funding that flows to small businesses in the United States, while opening up participation to everyday citizens. Title III sets up new regulations for equity crowdfunding, opening up the investment platform to non-accredited investors or “the crowd”.