Obama has signed the crowdfunding Jobs Act into law, opening the way for mom and pop investors to sink investment support into startups.
The new law allows anyone to invest in startups, which are limited to $1 million per a year and must use SEC approved portals.
Investors making less than $100,000 per year will be limited to 5 percent, or $2,000 investments, while those making over $100,000 will be limited to 10 percent, or $10,000. Crowdfunding sites are also required to provide educational materials outlining the risk as well as other protections.
The legislation further undermines the 500-Shareholder rule, which limited the number of shareholders a company was allowed before SEC registration and going public. Companies now have a longer grace period to report financial data, are able to sell up to $50 million in shares, and are now allowed up to 1,000 shareholders before beginning the IPO process.
This should provide high growth companies with a larger runway leading up to IPO. It’s a god send for startups since they’re no longer limited to millionaires for investments, but it will require considerable self regulation for crowdfunding platforms.
The Jobs Act requires all crowdfunding sites to be members of a national securities association, which will include members of the crowdfunding industry as well as legal, securities and SEC experts.
The Jobs Act had bi-partisan support, understandable in an election year. With a moniker like Jobs Act, the bill was all about jobs creation. With a vote of 73 to 26 in the Senate and 380 to 41 in the House, few congressional members chose to stand in its path.
Not that it wasn’t without its critics. SEC Chairman Mary Shapiro warned the measure “would weaken important protections.”
Yet at $2,000 for the average Joe and $10,000 for the upper crust, the stakes of a bad investment aren’t high enough to shatter the markets. A good deal of regulation will need to form in the wake of the passage of the law, yet the Jobs Act will completely change the game for startups, and may well ensure that more of them get off the ground to become the next big thing.