Title III is here! What is the future of Crowdfunding?
What does the future hold for crowd-funding now that Title III is here?
This week on Investing in the U.S. podcast I am chatting with Matthew Sullivan, Founder and President, CrowdVenture.com, an online crowd-funding marketplace, about the recent changes in legislations, Title III and Regulation A+, and what does the future hold for the crowdfunding space.
What did I learn
Matthew's transition from running a crowd-funding business in London, UK, to setting up CrowdVenture here in the U.S. is nothing short of inspirational. He shares his love for flying helicopters and how Title 3 and Regulation A+ has turned 230 million Americans, into investors!
1. Crowd-funding is now headed to become global
Ever since the first piece of legislation, section 506(c) of the securities and exchange act, 1993, crowd-funding has grown tremendously over the years. Internet now enables, crowd-funding portals to go global, it has made the transactions more efficient and less work. Crowd-funding is taking a path as similar as, any other industry’s where transactions have now moved onto web from mano-a-mano basis.
2. What you need to know about Title III and Regulation A+
(Title IV)Regulation A+, incorporated last year (2015), which permits start-ups and small businesses to raise capital from accredited as well as unaccredited investors limits the amount of capital that that can be raised to $50 million. However, it does give the ability to mass-market.
Title III of the JOBS act, which came into effect on 16th May, now allows those looking to raise capital from almost anyone, accredited and non-accredited investors. It has made the use of crowd-funding portals mandatory, while also discarding any general solicitation rules. This might be music to the ears of businesses and start-ups looking for capital, but there is the small print which must be adhered too.
- 1.Firstly, under Title III a company can only raise up to $1million, in a 12-month period, from non-accredited investors. If this meets your business needs it is a very fast way to raise capital.
- 2.Secondly, there are further restrictions when dealing with non-accredited investors under this exemption. Investors who make less than $100,000 a year can invest the greater of 5% of their annual income, or $2,000. Investors who make more than $100,000 a year can invest up to 10% of their annual income, but cannot invest more than $100,000 in one year.
- 3.Finally, all transactions must be conducted through an intermediary that is either a registered broker-dealer, or is registered as a new type of entity called a ‘funding portal’.
Crowd-funding platforms are tasked with nurturing investorsLike any other industry that has now moved onto the web, capital raising (crowd-funding) too is in its educating-the-masses phase, coming up with ways to build trust among investors and making them comfortable at using crowd-funding platforms.
What does the future hold?
Like anything new the biggest uphill battle online crowdfunding platforms face is educating the greater public on what they do and how the recent changes work. However, with more eligible investors now entering the real estate market place, looking to place their capital, it is only a matter of time before we see the massive benefits from these recent regulatory changes. The crowdfunding space feels similar to the way people first viewed the Internet in the early 1990’s; unsure of its power and growth potential!
Until next week, Happy investing!