To the surprise and delight of entrepreneurs everywhere, the U.S. Securities & Exchange Commission (SEC) last week accelerated their proposal on Title III of the Jumpstart Our Business Startups (JOBS) Act under chairman Mary Jo White.
What’s the JOBS Act? It’s a U.S. law passed in 2012 that removes restrictions that previously made investing in small, high-growth businesses exclusive to individuals with net worths in excess of $1 million (also referred to as “angel investors” or “accredited investors”). When Title III is finally made law, which will happen soon, your aunt, who earns $200,000, will be able to buy up to $20,000 worth of ownership in your business — in addition to whatever else she might be investing in. (As per the proposed law, which for incomes of less than $100,000, you can invest $2,000, or up to 5 percent of your income or net worth; for incomes of more than $100,000, you can invest up to 10 percent of your income or net worth.)
Need an example?
Meet Alexandra Jordan, a 9-year-old coder who had a cool idea: to combat summertime boredom by scheduling play dates online, based on a kid’s school, grade and teacher. So let’s say, hypothetically, that after she launches her SuperFunKidTime, 1,000 families sign up, paying $9.99 a month, which investors commonly refer to as “traction.” She calculates that, with some investment in marketing and technology, she could grow to that membership to 200,000. Alexandra decides she needs capital.
When Title III becomes law, Alexandra will be able to crowdfund this capital from almost anyone. Today, entrepreneurs are restricted to raising money from a very elite, hard-to-access group of wealthy people. And breaking into the community of venture funding is almost impossible for most entrepreneurs. I was able to do it because I had every check mark in my favor — from the right college to a background in engineering and Web development. That’s worse than unfair; it’s anti-capitalist and anti-democracy. It’s stifling our economy and keeping bright entrepreneurs down.