The JOBS ACT -
Explained by a Venture Capitalist
Definition of the JOBS ACT, Crowdfunding, and What the JOBS ACT of 2012 Means for Startup Companies and New Businesses
JOBS Act is an acronym that stands for "Jumpstart Our Business Startups." The JOBS Act 2012 is a law that was designed to accomplish a few different goals at the same time, all of which mean interesting things for the world of business. In addition to the encouragement of funding of small businesses that are based in the United States, it was also intended to ease various securities regulations by the U.S. Securities and Exchange Commission (SEC) that previously made this type of thing more difficult. The JOBS Act has a number of implications for startups, particularly as far as crowdfunding is concerned, that you need to be aware of before either raising funds as a startup or investing in startups.
The JOBS Act Explained:
The JOBS Act creates a better environment for startup investing than what was there before because of a number of substantial changes to laws. Not only is it easier for companies to go raise money before having to go public, but it's also easier for companies to stay private for longer periods of time should they so choose. Regulation A+ and Reg D 506 (b) and (c) in particular make it easier for companies to take a much firmer grasp in the trajectory of their own companies through these initial stages.
Crowdfunding Rules with the JOBS ACT
New exemptions in the JOBS Act allow a company to receive smaller public investments without the previous requirement that they would have to register for an initial public offering (IPO). In essence, the JOBS Act allows for crowdfunding without the worry on behalf of business owners that they will need to file for an IPO if their assets become too great or when they have too many investors (investor threshold).
What is Equity Crowdfunding?
The type of crowdfunding now allowed and encouraged by the JOBS Act isn't quite the same as making a donation on Kickstarter, Indiegogo, GoFundMe, and others. The JOBS Act encourages equity crowdfunding, meaning that anybody who invests under the terms and conditions of a crowdfunding site will receive some type of equity in return. With sites like Kickstarter, people purchase and pre-order products. This is consideration for receiving newly inspired items. Equity crowdfunding includes creating a special purpose fund with general partners and limited partners, and then raises money from investors using this fund. It's not a donation. You must be careful because the risks presented can be greater to the average investor. Make sure you're an accredited investor before getting started in crowdfunding.
Increase Shareholders under the JOBS ACT
Another major change in the JOBS Act is that a company can now have more shareholders without being required to register with the Securities and Exchange Commission (SEC). Under the JOBS Act, a company has to become publicly reported once it exceeds $10 million dollars in assets and has more than 500 shareholders.
Emerging Growth Companies
Another major change in the JOBS Act has to do with redefining just what it means to be an "emerging growth companies." After 2012, companies with total gross revenues of less than $1 billion per year are still considered to be emerging growth companies.
Two-Year Phase In Extension
Of particular note to startup investors is the new extension to the two-year phase in that publicly traded companies now have. The JOBS Act broadens this period by another three years for a total of five.
Financial Statement Reviews
The JOBS Act 2012 also creates new requirements for when a company must have their financial statements audited and reviewed through the appropriate channels. When a company's offerings grow to between $100,000 and $500,000, a review is triggered. When offerings grow to greater than $500,000 (with a maximum of $1 million dollars), a full fledged audit is now required to occur. This is done to protect both the businesses themselves and the startup investors who they may have picked up along the way.
The JOBS Act crowdfunding provisions and other regulations are hugely important to know as much about as possible as you move forward with your business. The key takeaway, however, is that this is a big step in the right direction for startup investors everywhere. When you look at everything the JOBS act 2012 does right, it's easy to see why it was passed with bipartisan support in the first place.
Angel Kings is one of America's best venture capital firms that invests in the hottest startups and early-stage companies primarily focused in biotech and cybersecurity. Start investing in top companies with the JOBS Act by visiting AngelKings.com. Ross Blankenship is a world-renowned expert on venture capital and private equity, and has written more tips on the JOBS Act and how venture capital works.
Get 7 Tips on How to Invest with the JOBS Act: