This article is the first in a series addressing the recently signed JOBS Act and how small businesses are using crowdsourcing to fund their business ventures…
In April of last year, President Obama signed into law the JOBS Act (the “Jumpstart Our Business Startups Act”), a bi-partisan bill designed to make investing in small businesses easier. The rationale of the act is to ease federal regulations in order to make it easier for smaller companies to obtain funding.
With over 565,000 startups launched per month in the US, each averaging a first-year investment of around $78,000, reports of the JOBS Act’s passage was welcome news to many entrepreneurs. That is not to say, however, that beneficiaries of the law won’t have to meet some very specific requirements to qualify. Since the law will not fully go into effect until at least January of 2013, there is still time for small business owners to prepare to use crowdfunding as an alternative source of funding.
The overall purpose of the JOBS Act is to ease red tape, making it simpler and easier for smaller firms to raise funds through a process known as “crowdsourcing,” or “crowdfunding.” Crowdsourcing is a method of raising capital from small investors who in turn receive a stake in the business. This provides investors an easy, low-cost way to participate in a company without forcing the business to go through the rigors of an Initial Public Offering (IPO) or to meet other outdated government regulations.
Under the JOBS Act all money that is crowdsourced must first go through a third-party, Securities and Exchange Commission (SEC)-registered broker or website “portal” to help manage the risks for these type of investments. Currently, many of the most popular crowdfunding services are web-based (such as IndieGoGo and Kiva) but alternative lenders like Triton Financial Solutions have also entered the crowdsourcing arena with the passage of the JOBS Act.
The JOBS Act excludes companies with earnings over $1 billion a year from participating and caps the amount that can be raised by any one company at $1 million annually. Investors, those “crowdsourcing” the business, may contribute no more than 5% of their income if they make less than $100,000 a year. Individuals making over $100,000 a year are allowed to contribute no more than 10%. These regulations attempt to mitigate the risk smaller investors assume when investing. The SEC is currently writing the bylaws to support this new law and to define the parameters under which this law will be governed.
With over 75% of new jobs in the US being created by small businesses annually, the impact could be striking. The JOBS Act creates the perfect opportunity for would-be entrepreneurs to start a new business and get much needed funding.
If you would like more information about how the JOBS Act could impact your small business or your investment options, contact Triton today to talk to an experienced alternative lender, and return here over the next few weeks as we analyze what the JOBS Act and crowdfunding mean for you and your business in a series of upcoming articles.
Anyone who has questions or would like to share pertinent information to be included in upcoming blogs on this topic, please let us know at firstname.lastname@example.org or call 770-249-2357.
La Mancha Sims is CEO of Triton Financial Solutions, a business development consulting firm located in Atlanta, Georgia. You can reach La Mancha at 770-249-2357.