The Jobs Act was signed into law by Barack Obama in April 2012, and that has the broad aid of letting more people become micro-investors. On the face of it, this sounds like good news for crowdfunding and for start-ups in general, but in fact, it creates a few complications that aren’t all positive.
The Jobs Act has only partly been fulfilled however. Specifically, titles I, V, and VII were enacted immediately, following the passage of the bill, while the others would follow. The recent crowdfunding news for hardware startups is that Title III is now poised to go into action imminently, which should have the largest impact on crowdfunding.
Let’s take a closer look at the bill, its titles, and how these are already affecting or could affect your hardware startup…
The basic idea of the Jobs Act is to encourage funding in small businesses and start-ups by easing a number of federal regulations that previously controlled how businesses could be funded. This in turn, allows businesses to accept small donations from private individuals, which is essentially crowdfunding. This means the company doesn’t have to make a public offering.
At the same time though, the Jobs Act is also designed to give those same people the opportunity to become investors and to profit from their involvement. It all seems like a positive step toward a more forward thinking form of business, facilitated by the web.
As well as easing some regulation though, the Jobs Act also introduces some new guidelines for crowdfunding and private investors to prevent problems from arising. Many people see the steps taken so far as being broadly in the right direction, but it is the imminent Title III that will have the biggest impact on crowdfunding and small business financing.
The Jobs Act Title III states that companies can raise up to $1 million annually from individual investors. Investors whose net worth is lower than $100,000 may invest 5% of their income or $2000, whereas those who earn more can invest 10%. This might sound restrictive, but it is considerably less so when compared with the previous regulations laid out by The Securities Act of 1933 – which determined accredited investors must have at least $1,000,000 in net worth. The Jobs Act Title III also states that businesses must offer full disclosure to all their investors.
The idea is that this should hugely increase the pool of potential start-up investors in the US – from 3.5 million to 233.7 million specifically. This could mean as much as $50 trillion in extra investment funds. Note that these changes affect ‘EC’ – equity crowdfunding. This won’t affect those of you hoping to generate a few thousand dollars on Kickstarter, which means there’s less for you to worry about!
While the Jobs Act Title III appears to be good news, there are still those that are skeptical. EC regulations will still be complex, and this is likely to put off a number of small businesses. What’s more, it’s important to remember that this isn’t free money (but then, neither is RC – rewards crowdfunding). Others are concerned at the potential for more investors than ever to lose money through the new regulations, especially as people who are new to investing may now seek to get involved without the experience and understanding of what they are doing.
So what do you think? Is the Jobs Act and Title III good news? Will they affect your hardware startup’s business plans going forward? Let us know in the comments below, as always! Do subscribe to our newsletter for more exciting news in the hardware industry.