First learn the background about the JOBS act here: JOBS
Well I am not a prophet but that doesn’t mean I can’t voice my opinion. Right now you have a good number of portals working on the internet to gain the investment dollars of less than 90% of the American public which accounts for a $800 Billion dollar industry of private placement investments per year. Now if you take a look at these investments you will see that they seem very attractive you can invest in an income producing commercial real-estate building in NYC with an annual return of 10% that sounds pretty good right? Well if you are an accredited investor (link) it is a great opportunity. What will happen then when the market is opened up to the other 90% of Americans? There are two sides to look at. On one hand it seems like the demand will completely outweigh the supply. There will simply be so many potential investors out there and only so many offerings available. The result may be that these offerings will become less attractive. They sponsors will be able to offer a lower rate of return as they will be able to find investors easily. Although normal economic reasoning of supply and demand may dictate this eventually it may not be so simple.
I would consider three other factors as well. First of all as the financing for these investments becomes easier for companies and business to obtain, more and more will turn to using this avenue to raise money. As the process becomes more efficient and streamlined, it will make equity crowdfunding the most preferred way for companies to raise money. Currently only a select few companies and real estate projects have turned to this avenue for funding but as the market opens up we can expect that more offers will come to the market as well. This will at least in the long term make the supply of investments grow and will keep the returns steady. A second issue that should be considered is that investors are not foolish they realize these investments carry a certain amount of additional risk that classic equity investments usually don’t that being the case they won’t accept deals that have a lower rate of return. Lastly, when the legislation passes the non-accredited investor will still be regulated in how much they can invest. This means that although the investor pool will grow dramatically the actual amount of money available will not grow as dramatically (it will still mean a huge influx of available capital) but it won’t be 9 or 10 times what is currently available.
I wouldn’t be surprised if in the short term that there is a slight decline in the average return on these investments that the sponsors offer but in the long run it should all even out. But nobody really knows what will happen. I do not expect though that the risk adjusted returns will increase with the passage of the legislation. If you are an accredited investor and have the capital I would act now to lock up some of the great offers that are currently out there instead of waiting for these to open up to the masses.
What do you think will happen when JOBS passes?