By now you have probably heard of JOBS a reference to the JOBS Act which was partially passed by the government. It actually has nothing to do with employment, but it is an acronym for Jump Start Our Business Start-up Act. The act is supposed to encourage funding of small business by easing securities regulations. The law was signed back in 2012 but the portions of the law which are the most significant in terms of crowdfunding have only been partially approved. Before the JOBS act a small business or start-up would not be allowed to market to the public their business in terms of an investment opportunity. Eventually that was eased allowing these companies to offer investments but only to accredited investors. Being that these companies were offering non regulated investments they need to make sure that the investors were of a certain wealth caliber and sophistication to insure they understand and could financially cope with the additional risks of investing in such mechanisms. This change helped spur the growth of the crowdfunding investment industry with platforms and offerings popping up all over the internet. All of these platforms require a registration in which the company performs a legally sufficient due diligence on the applicant in terms of their meeting the accredited investor criteria.
Sounds great so all you need to do is become and accredited investor and all of these previously unknown investment opportunities are now at your disposal. Well it isnâ€™t that easy to become an accredited investor. An accredited investor is defined by the SEC which governs the laws on securities investment as someone with $1 Million dollars in net worth (not including their primary residence) or annual income in each of the past two years of at least $200,000. This requirement basically excludes more than 90% of the US public from participating in these investment opportunities.
What this means is that most of the people reading this article have no legal means to participate in crowdfunded investment offerings. It is for this reason that the crowdfunding industry is spending time and money lobbying the government to pass the remaining articles of the JOBS act which would truly open these offerings to the general public. Think about like this some of these are great investment opportunities but the government is saying we will only allow the rich to invest, making the rich richer and leaving the everyday Joe to settle for a stock index fund :
There have been some portals who have been able to work around these regulations by offering limit investment opportunities in specific states to investors who are residents of those states. These investments are allowed under state legislation giving an exemption to the regular SEC rules. Check out our portal comparison page to see (link) which portals currently offer these options.
UPDATE: As an update to this page, in April 2015 the SEC passed Regulation A+ of the JOBS Act which allows for sponsors to pursue investments registered under Regulation A+ from non-accredited investors. Although this was technically always legal the difficulties in terms of time and effort to qualify an offering nationwide made it financially impossible for the platforms to use this legislation. The updates to the Regulation A+ have streamlined the legal processes for qualifying offers to non-accredited investors and we hope to soon see the platforms adopting this filing procedure to offer their investments to the wider public. For a more in depth analysis of Regulation A+ read our article about the new legislation here .