The JOBS Act passed the House, was then amended and passed by the Senate, then passed once again by the House last Tuesday. The bill is now being sent to President Obama for final signature this Thursday.
One of the most talked about provisions of the bill is the crowdfunding aspect, which eases restrictions on start-ups to able to raise money from non-accredited investors. But what kind of companies will the new laws benefit and will it really create jobs?
How crowdfunding changes the way start-ups can raise capital
These days, for an entrepreneur to raise funds for a new idea, he or she needs to have connections to investors. This route of raising funds is called raising capital from friends and family. Entrepreneurs aren’t allowed to make any solicitations public.
And, while start-ups can raise funds from an unlimited number of accredited investors, they are only allowed to raise capital from a maximum of 35 non-accredited investors. Examples of accredited investors are banks, insurance companies, and individuals with a net worth of $1 million or more.
Now with the JOBS Act, that should likely be passed, start-ups can advertise that they’re seeking investment, and can also now raise money from as many investors, accredited or non-accredited, as they can.
Craig Montuori, political advocate on behalf of passing the Startup Visa act through Congress and founder of PolitiHacks, told VatorNews that crowdfunding will act as competiton to small business bank loans, a big reason, he said, that the big banks were against the legislation.
There are still some restrictions when it comes to the amount of money that can be raised. The company is allowed to raise up to $1 million in funding, and will not have to make its shares public. If the company raises $2 million then it will need to provide the Securities and Exchange Commission (SEC) with audited statements.
Mark Hatch, CEO of TechShop, a chain of workshops that allow members to use their tools to build projects, told VatorNews that the JOBS Act is “brilliant” and one of the “most important pieces of legislation in decades.”
TechShop, he said, has seen dozens of its clients get crowdfunding money through Kickstarter, a website designed to allow the general public to invest in local projects. By removing one of the biggest barriers that start-ups face to getting themselves off the ground, he said, it will “potentially create millions and millions of jobs.”