On April 5th Startups (JOBS) Act was going to democratize funding. The eighty-year ban on solicitation was lifted per Title II but the equity crowdfunding portion of the Act is stuck in rule making with the Securities & Exchange Commission (SEC). On the second birthday of the JOBS Act, investors still must be accredited to invest in non- public companies.
Title III of the JOBS Act or “equity crowdfunding” will allow unaccredited investors to purchase equity or shares in company online through an approved funding portal. In turn Title III allows issuers (JOBS Act terminology for entrepreneur or small business) to raise money from the crowd. Unfortunately, Title III is not yet legal.
Last fall approximately the SEC issued 585 pages of rules containing 295 questions for Title III equity crowdfunding. The comment period closed in Feb 2014. There were almost 300 letters submitted. So, we are in wait and see mode on this second birthday of the Act.
As entrepreneurs we hope there are some changes to the rules, particularly the ongoing audit requirement for those companies raising over $500,000. Even a one time audit prior to raising funds will be onerous for a startup. Many emerging companies do not have much on their balance sheets in the early days and for more mature software companies there are still not a lot of assets to audit.
Those involved in the industry are calling for the rules so we can get started but others are now talking about JOBS Act II. It would be a shame if the rules never emerged and we were diverted for another two years.
Regardless of the outcome we at Traklight want to caution entrepreneurs using any type of fundraising, including the rewards-based crowdfunding, to first identify and protect their intellectual property BEFORE crowdfunding.
Before you Crowdfund, ID your IP!
Watch and learn more about Practice Safe Crowdfunding ®