It’s Official – Average Joe (Or Jane) can Invest in Crowdfunding


The Securities and Exchange Commission votes on Title III of the JOBS Act

On Friday October 30th the SEC voted in favor of Title III of the JOBS Act allowing non - accredited investors, which is the majority of Americans, the option to invest in crowdfunding. Title III is expected to be fully implemented in 180 days from now.  As a result, any person or company with an idea can now solicit up to $1 million in funds from the average Joe or Jane without going through SEC regulatory rigmarole.

Why is this important?

Well, now the average Joe or Jane, once thought to poor to invest in startups, has a chance to invest in crowdfunding just like any accredited investor.  How do you ensure our Joe or Jane investor doesn’t do dumb things?  The government has put limits on the amount the average Joe or Jane can invest. The new rules protect investors by putting limits on what individual investors over a 12-month period can invest – the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000 and investors are limited to 5% of their annual income or net worth.

I believe the anticipation and hype around the idea that we now have an egalitarian system to invest in hot startup deals or other interesting platforms, previously accessible to accredited investors (doctors, lawyers, dentists, etc. or those who can prove they have a $1M or more in investable assets and other criteria) probably will never be a big issue. By the way, an accredited investor doesn’t mean you are sophisticated.  A doctor may be accredited, but not a sophisticated investor.  So those rules around accreditation were really about absorbing losses.

It’s great the Securities and Exchange Commission has modified the Securities Act of 1933 and the Securities Exchange Act of 1934 to implement new regs for Crowdfunding as part of the requirements of Title III of the Jumpstart Our Business Startups Act.  The Government certainly needs to be involved in some way or else you do run the risk of fraud or excessive losses (poor Joe put his life savings into that new pizza startup)  but I do think we need to provide people the freedom of choice, especially since the Government has been taxing savers in the form of ZERO interest rates for a long time now.

It’s certainly good to see our legislators implement something 3 years later than expected.  But many crowdfunding platforms – a source of information for investors as well as a place where someone can raise a new business idea, etc. - have moved beyond needing retail investors.  Even with P2P or marketplace lending, while Lending Club, Prosper and others got their start with retail investors, their models have moved increasingly to the institutional market.

It’s certainly nice to see some progress occur at the political and regulatory levels, but as usual, the Government either is one step behind the market or burdens it with excessive regulation.

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