Below is an article by Private Equity Strategies entitled "Crowdfunding and the JOBS Act: The Next Wave In Private Capital Funding"
Crowdfunding and the JOBS Act: The Next Wave In Private Capital Funding
By: Bailey McCann, Private Equity Strategies
July 23, 2013
Earlier this month, the SEC proposed to lift the 80-year-long ban on general solicitation of accredited investors, pursuant to Title II provisions of last year’s JOBS Act. With the new rules, entrepreneurs will now be able to advertise and promote their capital raise activities online (and even offline with billboards and TV ads) to court accredited investors – making the capital raise process somewhat like a new Match.com for businesses and investors. The SEC ban lifting will also affect hedge funds, as Opalesque previously covered, in addition to generating much more deal flow for angel investors.
However, even though there are approximately five million accredited investors in the US, only 10% are actively involved in the investment process. Since businesses will now be able to advertise their capital raises to these investors, this could lead to a boom in driving more accredited investors to participating in the investment process through crowdfunding.
Even before the vote on Title II, some platforms were available for crowdfunding. These first movers now have the outlets in place to build on the next wave ushered in by this vote. EquityNet is one such platform, and has raised more than $200m dollars from accredited investors for entrepreneurs. EquityNet will also be one of the first funding platforms for entrepreneurs to capitalize on the advertising components of the SEC’s adoption of Title II as the company has been anticipating this move for some time.
“Companies can now advertise in a much more profound way their need for capital at all stages of their lifecycle,” says Judd Hollas, CEO of EquityNet in an interview with Private Equity Strategies. “I think this vote is going to result in more capital being available, and will be most impactful for the individual-to-individual relationship.”
The question for many concerned parties is the potential for fraud. Will there be an increase in unscrupulous activity? What experiences do other countries have in dealing with securities-based crowdfunding? It is interesting to note that while the SEC did lift the ad ban, it placed the bar for accredited investor verification higher—eliminating the “self-verification” option. What does that mean -- in practical terms for accredited as well as non-accredited investors?
“I think the fact that entrepreneurs have to verify that investors are accredited is a positive step. Arguably the same questions were raised about companies like eBay or PayPal in the early days, but there have also been a lot of technological advancements driven by those companies. Those technologies and community self-policing will come along here too, some solutions are already in place,” he says. Read More>