Regs Watch, a periodic update on changes in regulation for private equity published by Opalesque.com, drew attention to the JOBS Act Title II that went live yesterday.
Calling it a change that “marks one of the biggest for private financing options in recent memory,” Regs Watch says private investing finally meets the Internet. Hitherto, small businesses, startups, and private companies were not allowed to solicit investments in their business. All that will now change.
In April, Li Lu and Bruce Greenwald took part in a discussion at the 13th Annual Columbia China Business Conference. The value investor and professor discussed multiple topics, including the value investing philosophy and the qualities Li looks for when evaluating potential investments. Q3 2021 hedge fund letters, conferences and more How Value Investing Has Read More
Here are some key excerpts from an interview with Crowdfunder CEO Chance Barnett.
The important change
As of yesterday, the ban on solicitation has been lifted, and “startups who file with the SEC can generally solicit openly both online and offline, as long as they disclose how they are soliciting to the SEC in more detail within 15 days of soliciting. Startups cannot, however, make the opportunity to invest open to anyone, but only to accredited investors.”
As a result, early-stage financing and investing will no longer be the preserve of the PE closed clubs, and will be out in the open on the Internet and accessible to most anyone. Startups and founders can count on sites such as Crowdfunder to “bring them access to a large pool of investors with the click of a button.”
Important payoffs for business founders
This will reduce time to funding dramatically. “Break-out investment raises get funded in a matter of days or weeks in the near future in a way that just didn’t happen in the “offline” world of investing.” Marketing and distribution efforts will go out the window, or reduce to a minimum—no longer will they be required to ‘do the rounds’ and pitch their case to investors. Online platforms will allow certain founders to gain quick access to large groups of investors quickly. This would free up time for their businesses as opposed to fundraising. Another advantage is that the platforms standardize and optimize ‘pitches’ in a way that garners instant attention, as compared to email attachments that may never see the light of day.
What’s next in the JOBS Act regulation?
JOBS Act Title II is already functional. Title III, which will allow non-accredited (read: small investors like you and me) investors to buy a piece of new business they like, is expected to become a reality in 2014. This will be a game-changer in new business financing and bring “a tremendous new wealth of capital to the market to back deserving startups and social enterprises.”