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How the JOBS Act Is Legalizing Equity-Based Crowdfunding

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In April 2012 the Jumpstart Our Business Startups Act (called the JOBS Act) was passed and signed by President Obama.

The JOBS Act Opens Up Equity-Based Crowdfunding

The key goal of the JOBS Act was to make it possible to raise funds from investors through certain crowdfunding sites in exchange for equity in your company.

To clarify, there are many sites online where you can raise Crowdfunding today. But on these sites, the money you raise is either in the form of donations or are in expectation of rewards; you were previously unable to raise equity via Crowdfunding.

The JOBS Act Today


While the JOBS was signed in April 2012, it did not allow for equity-based Crowdfunding...until the SEC approved certain regulations.

The first major regulations were approved last month, on September 23, 2013. Specifically, on this date, the JOBS Act removed the ban on general solicitation.

General solicitation is the act of telling people, with whom you do NOT have a pre-existing relationship, about the opportunity to invest in your private company. This had not been allowed for 80 years prior to September 23.

So now you can tell the world that you're raising equity funding. You can shout it from the rooftops, tell people about it who are leaving a library, post it on Facebook and Twitter, and so on.

The JOBS Act Tomorrow

However, there is still one BIG limitation the JOBS Act has not resolved. That issue is that, as of today, you can only raise equity Crowdfunding from accredited investors.

While the full definition of "accredited investor" is slightly more detailed, it generally means that the investor is sophisticated and has a net worth (excluding the value of their primary residence) exceeding $1 million and/or has annual income greater than $200,000 in each of the two most recent years or (or $300,000 if including their spouse).

As you can imagine, the vast amount of people who might want to invest even a small amount in your company are NOT accredited investors. That's where Title III of the JOBS act comes in; we hope that sometime in early 2014 the SEC finalizes Title III and legalizes equity-based Crowdfunding to non-accredited investors.

In the meantime, you CAN raise rewards-based Crowdfunding and equity-based Crowdfunding from accredited investors. And hopefully within a few months, the Crowdfunding opportunity will be even bigger.

 

Suggested Resource: Do you want Crowdfunding? If so, don't try to raise it from scratch -- the 14-step blueprint already exists. Get the Crowdfunding blueprint here.


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