It Just Became Much Easier for Small StartUps to Raise a Million Dollars

As of today new rules allow anyone, even those earning less than $100,000 a year or having a net worth less than that, to invest in startups. (Previously, that ability was limited to accredited investors, or those earning more than $200,000 a year or with a net worth of at least $1 million.)

“The change now upgrades the amount of active angel investors nationwide from 370,000 to 240 million new potential people who can invest in startups and small businesses,” says Ryan Feit, chief executive and cofounder of equity crowdfunding platform SeedInvest.

Reports Laura Shin at Forbes:

You’ve probably heard of Kickstarter, Indiegogo and the like. These crowdfunding sites enable organizations and projects to raise money from supporters, who receive rewards such as a completed product (like an album or gadget) or a public acknowledgment or a T-shirt in return for their donation.

The new rules, which are being implemented under Title III the Jumpstart Our Business Startups (JOBS) Act, now allow those raising funds to turn their backers into investors and give them a piece of the company. The companies are limited to raising $1 million in a 12-month period, and investors are also restricted in how much they can contribute. Those earning less than $100,000 per year can put in the greater of $2,000 or 5% of their annual income. Those making more than $100,000 per year can invest up to 10% of their annual income.

But there will still be some SEC harassment.

The issuer company must present their security offers to the investing public through a SEC registered investment portal. These portals can be run by a registered broker-dealer or an organization that registers with the SEC as a funding portal. The portal has the responsibility check that the issuer is presenting factual information and that the security offering is in compliance with relevant laws and regulations. The issuing company also needs to file a Form C, which is an initial disclosure form, plus provide regular updates on the status of the fundraising efforts. (via Davis Vanguard).

 -RW