This article was written by Tanya Prive on November 6, 2012, but it gives us a better understanding of how the JOBS ACT affects Crowdfunding.
In the spring of 2012, President Obama passed an act that will drastically alter the landscape of crowdfunding platforms. Until April 5, 2012, a small pool of existing crowdfunding sites were only permitted to operate on a reward or donation basis, essentially offering a product, discount, or enticement in exchange for monetary funding. With the launch of the JOBS Act, short for Jumpstart Our Business Startups, the ability for the general public to receive company equity in exchange for funding is now a possibility.
As of today, the Securities Act of 1933 states that entities can not offer or sell securities to the public unless (a) the offering is registered with the SEC, or (b) there is an available exemption from registration. Unfortunately, the crowdfunding exemption introduced under title III of the JOBS Act under Section 4(a)(6) of the Securities Act won’t be available until the SEC issues its regulations.
The issue is entrepreneurs find it very difficult to access financing when doing startup fundraising. Not only because their business plans are rejected 98% of the time by Venture Capitals when they can manage to get an introduction, but also because U.S. banks according to the Small Business Administration, held $607 billion in outstanding business loans of $1 million or less during 2011, which surprisingly enough, represents $100 billion less than in 2008. With the current state of the recession and the rising numbers of unemployment, crowdfunding could be a great asset to our country’s economy. These portals could serve as a great vehicle for investing in small businesses, which are accountable for creating 65% of the net new jobs over the past 17 years. As the Co-Founder of Onevest, the leading equity crowdfunding platform for entrepreneurs and small businesses, I have seen just how effective the power of the crowd is.
Here is the link to read the full article: https://www.forbes.com/sites/tanyaprive/2012/11/06/inside-the-jobs-act-equity-crowdfunding-2/?sh=65cd68404b2e