After months of lobbying, debate, and political compromises, the United States has finally embraced crowdfunding. Last week, President Barack Obama signed into law the Jumpstart Our Business Startups Act (JOBS Act).
The crowdfunding part of the legislation incorporated provisions from Senator Scott Brown’s Democratizing Access to Capital Act, and Senator Jeff Merkeley and Senator Michael Bennett’s Capital Raising Online While Deterring Fraud and Unethical Non Disclosure Act of 2011 (known as the CROWDFUND Act). Most important for Grow VC member entrepreneurs, a startup will now be able to raise up to $1 million per year through an SEC-registered crowdfunding portal such as Grow VC. Even more importantly for individual investors, the final legislation will allow U.S. citizens and residents with incomes less than $100,000 per year to invest the greater of $2,000 or 5% of income, whichever is greater.
Individuals with income greater than $100,000 can invest up to 10% through an SEC-registered crowdfunding portal, up to $100,000.
In a statement last week, Senator Scott Brown said “Crowdfunding is a game changer for startups and entrepreneurs in Massachusetts and across the country. These small businesses now have a powerful new tool to grow and create jobs. And now every American, regardless of income level, is able to invest and get in on the ground floor of a great business idea. This bill has great potential for our economy and job growth.”
The greatest concerns that certain lawmakers held on to throughout the lawmaking process were those relating to preventing and prosecuting fraud. The final version of the law has placed oversight of websites like Grow VC into the realm of the SEC, which now has 270 days to draft further regulations for this new investment sector. Of course, Grow VC has a legal team already deployed to monitor this rule-making in order to quickly become compliant to best serve our members.
The law also requires startups on websites like Grow VC to provide information in the way of business plans, financial status, and shareholder risks. Companies seeking to raise up to $100,000 will have to provide tax returns and a financial statement certified by a company principal. Companies seeking between $100,000 and $500,000 will have to obtain independent accounts to review these statements. For companies raising over $500,000, audited financial statements will be required. Grow VC will fully enforce all of these requirements, assist our startup members with compliance, as well as provide additional protections for all of our users.
In addition to the emerging growth company and crowd-funding provisions, the new law removes SEC regulations preventing small business from using advertisements to attract investors and raises the number of shareholders a company can have before it must register with the SEC from 500 to 2,000. This may be particularly relevant for our Networks users, who will be able advertise their Networks to reach a much broader audience.
In 2011, equity-based crowfunded projects like those currently on Grow VC raised $20.5 million, five times more than in 2010. We expect 2012, and especially 2013 to be massive improvements on these numbers. The SEC has 9 months to craft all of the nitty-gritty of the regulations, and Grow VC will be there every step of the way ensuring we are the first to be compliant with the new laws and generate maximum value for our users.
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