When president Obama signed the JOBS (Jumpstart our Business Startups) act in 2012, he was helping many small businesses raise money. But the bill actually did so much more than this, including establishing equity crowdfunding.
Jobs Act Origins
Why, with so many problems in the economy, would congress focus on such a bill? Due to the financial crisis, startups were having trouble getting loans or investments. With over 400,000 startups every year (according to the SBA), and less than 3,000 venture capital deals in 2008 (according to Statista), this spelled a big problem for struggling startups.
This became such a problem that within his speech, president Barack Obama recognized it in his speech before signing the bill.
“Now, because we’re still recovering from one of the worst recessions in our history, the last few years have been pretty tough on entrepreneurs. Credit has been tight. And no matter how good their ideas are, if an entrepreneur can’t get a loan from a bank or backing from investors, it’s almost impossible to get their businesses off the ground.“President Barak Obama, JOBS Act Speech
What happened in response? During the crisis, Kickstarter and Indiegogo established what we know today as crowdfunding. The two crowdfunding platforms allowed companies to sell preorders for their products in order to raise money.
Some of the largest companies in the world were created during the financial crisis, including companies like Square, WhatsApp, Venmo, Groupon & more!
Something you may not know is that the financial crisis also saw Bitcoin and cryptocurrencies, as well as blockchain technology, emerging as a revolutionary new financial and digital technology.
JOBS Act of 2012 Bill & Passage
Congress recognized that these platforms were very helpful to startups who desperately needed access to capital, and that they could help as well. Representatives introduced a bipartisan bill (the JOBS act) to loosen the regulations on raising money and established equity crowdfunding to foster American innovation. The act was designed to do exactly what it says in its name, to “Jumpstart Our Business Startups” (our, meaning Americans).
“Today, the House passed another bipartisan jobs bill that will jumpstart our economy and restore opportunities for America’s primary job creators, our small businesses, startups and entrepreneurs.“Rep. K. Michael Conaway
Jobs Act Titles (there are seven of them):
The jobs act didn’t simply come into law in one fell swoop, it was slowly rolled out over time. It would eventually take three to four years before there were any titles allowing non accredited investors to invest in private companies.
- Title I: Edited the 1934 Securities and Exchange act (from the Great Depression) to allow companies with under 1 billion dollars in revenue to raise money, set requirements and financial disclosures necessary | 2012
- Title II: Allowed companies to raise an unlimited amount of money via accredited investors (rich investors) and to solicit them. | 2013 | SEC FAQ
- Title III: Regulation Crowdfunding allows startups to raise up to one million dollars (1.07M now for inflation) from non accredited investors (everyday Americans) | 2016 | SEC FAQ | Limits Recently changed in 2020 here.
- Title IV: Regulation A allows startups to raise up to $50M | Tier 1 w/ less regulations 7 $20M max, Tier 2 with more & $50M max | 2016
- Title V: Increased investor limit to 500 non accredited investors and 2000 accredited investors (not including employees), as well as $10M in assets, before registering shares with the SEC | 2012
- Title VI: Similar to Title V but for banks, allows for deregistration | 2012
- Title VII: Requires SEC to conduct outreach to smaller businesses and businesses owned by women & minorities | 2012
The bill passed with flying colors in both the house (390-23) and the Senate (73-26), signed into law (the first title) by president Barak Obama on April 5th, 2012.
Equity Crowdfunding for Investors
The JOBS Act did a whole lot for startups, but what about investors? It established equity crowdfunding, meaning companies could raise money from the people, accredited or nonaccredited (2016 onward). If you would like to learn more about investor accreditation, you can read more here. Equity crowdfunding today allows nonaccredited investors, or those with a smaller incomes and/or net worth, to participate in the historically higher venture capital returns.
This data is from Cambridge Associates, and if you can’t already tell, the returns of venture capital funds have been nothing short of amazing over the past 30 years when compared to the stock market. Regulation crowdfunding specifically allows non accredited investors to invest in private companies, something they haven’t been able to do for almost a century, and this asset class has a history of amazing returns.
Do I Invest via Equity Crowdfunding?
Let me start off by saying I currently have as much money in Equity Crowdfunding as I do in the public stock markets. I have personally invested in 15+ companies, and I can tell you that it is a wonderful experience and something all investors should consider, especially given the state of the stock market today. It helps you escape the insane volatility and daily movements of the public stock markets, and your investments are very long term, focused on the growth and valuation of companies. It strikes a very good balance between growth (low earnings and growing) and value (much smaller companies, some are very good deals). The companies I have been able to invest in have been anything from 2 million dollar companies, all the way up to 220 million.
Investor Limits for Non Accredited Investor
- Regulation Crowdfunding: $2200 per year, up to $100k per year depending on income
- Regulation A/A+: 10% of your net worth or income, whichever is greater, per investment
Update: In around January of next year, the SEC will be changing the investing limits to your net worth and these limits will no longer apply going forward. You can read more about these new limits in their news release.
What about Accredited Investors?
Accredited investors have very few limits when investing in companies, especially with Regulation D, which even allows companies to advertise and solicit investments from them. There are generally no limits for accredited investors as far as the amount they can invest, but I will go further in-depth in my post on accreditation.
If you would like to learn how to get started investing via Equity Crowdfunding, you can read my other posts on Equity Crowdfunding. Our Newsletter (you can sign up below!) will also keep you up to date on Equity Crowdfunding and much, more, as well as whenever we publish another post!