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Equity Crowdfunding Research & Education

What is The JOBS Act?

By Wayne Mulligan
Founder, Crowdability

 

On April 5, 2012, President Obama signed into law what's called the Jumpstart Our Business Startups Act -- or, the JOBS Act for short.

Among other things, the law essentially legalizes equity crowdfunding, which is the ability for individuals to invest in start-up companies in exchange for equity. This is not to be confused with traditional crowdfunding -- popularized by sites such as KickStarter and IndieGogo -- where people can contribute to a company or a project in exchange for product, gifts, etc.

At present, only accredited investors are allowed to invest in start-ups. Accredited investors are individuals who can claim a net worth of $1 million or more or who earn greater than $200,000 per year ($300,000 for a couple). 

The next phase of the JOBS Act to be implemented, Title III, will allow for anyone -- regardless of whether or not they're accredited investors -- to participate. This provision is currently in the hands of the S.E.C. and should be finalized at some point in 2014.

The Big Winners

The JOBS Act is a potential game-changer for entrepreneurs, job seekers and investors.

Entrepreneurs in need of essential start-up capital are no longer limited by old school fundraising options -- which, until the JOBS Act consisted of Silicon Valley and New York venture capital funds, or taking their company public.

As capital availability improves for young companies, they'll be increasingly able to hire the talent they need to break through. 

And finally, investors now have the ability to experience the wealth-building potential of investing in early-stage, private businesses, where fortunes can be made as the world's next Twitters, Facebooks and Googles get off the ground with the help of their investment. 

A Word of Caution

As with any new asset class, getting involved early can be a tremendous advantage.

But equity crowdfunding doesn't come without its risks.

Before you get started, we encourage you to educate yourself, and we'd like to help...

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