The JOBS Act One Year Later: Where Equity Crowdfunding Stands
April 5 marks the one year anniversary of the JOBS Act being signed into law by President Obama. The JOBS Act legalized equity-based crowdfunding in the U.S., which would allow ordinary Americans to invest in newly forming and established small businesses they believe in, while realizing a return on their contribution. The law gave the SEC a firm deadline for releasing its rules governing this new asset class — yet one year later, the agency has yet to release them. When the president signed the legislation into law, he said, « The last few years have been pretty tough on entrepreneurs… for business owners who want to take their companies to the next level, this bill will make it easier for you to go public, and that’s a big deal. » Yet for the entrepreneurs and business owners who desperately need capital — and a break — equity crowdfunding is not yet a reality.
However, that does not mean the industry as a whole has been sitting on its hands — quite the opposite. Platforms have gone from the idea stage to fully functioning businesses ready to flip the switch and ignite change in the capital markets; investor advocates have been vocal on both sides, with transparency and education being top priorities to help prevent fraud; and business accelerators and incubators have finally started to consider equity crowdfunding as a legitimate funding mechanism for startups.
With the pending confirmation of Mary Jo White as SEC chairwoman, crowdfunding advocates remain hopeful that significant progress will be made this year in regards to Titles II and III of the JOBS Act, which legalized equity crowdfunding for accredited and unaccredited investors, respectively. There is reason for optimism; in her testimony during confirmation hearings, she said:
I would work with the staff and my fellow Commissioners to finish, in as timely and smart a way as possible, the rulemaking mandates contained in the Dodd-Frank Act and JOBS Act. The SEC needs to get the rules right, but it also needs to get them done. To complete these legislative mandates expeditiously must be an immediate imperative for the SEC.
This past January, I organized and hosted one of the largest crowdfunding conferences to date — Crowdfund Texas. I was pleasantly surprised by the attendance of perks-based Crowdfund entrepreneurs who had collectively raised millions on Kickstarter and also those with no formal affiliation to crowdfunding. Most interestingly, their reaction to equity crowdfunding was overwhelmingly positive, even from those who may have been on the fence prior to attending. Nearly everyone — from venture capitalists to entrepreneurs to traditional financial professionals — was incredibly optimistic and excited for the potential equity crowdfunding holds. Race, age, gender and geographic biases that do exist in the traditional venture capital space can be significantly diminished since the crowd now has the power to decide what ideas succeed. Existing businesses that cannot get bank loans due to a tightened credit environment will now be able to approach their loyal customers along with their social and professional network — who will approach their social and professional network — to invest online in growing or sustaining their companies.
The positive buzz at Crowdfund Texas was certainly not an anomaly; a recently released survey by Early IQ, the Crowdfunding Professional Association and Crowdfund Capital Advisors found that nearly 60 percent of those surveyed indicated strong interest in early-stage equity investment, with the average likely investor willing to contribute approximately $2,000 each year to two or three new ventures or existing businesses through equity crowdfunding. Transparency was a key theme that emerged in the survey, with « transparency by the management team » being rated the number one demand by respondents. The organizations and platforms I’ve been in contact with see this as a key advantage of crowdfunding online — if sunlight is the best disinfectant, the crowd is the source.
As with any shift from old to new paradigms, we still have a long way to go, even after the SEC finalizes its rules. But just think: a year from now, entrepreneurs might be able to go to those friends, neighbors, and colleagues who know them best and offer more than just a « thank you » or a t-shirt in exchange for their hard-earned money — they can offer them a real piece of the pie. Social enterprise is upon us, and it’s here to stay.