In September, key provisions of the JOBS Act of 2012 were finally implemented, changing the landscape for accredited investors, private companies, and small businesses alike.
The Act, intended to raise capital from private offerings and IPOS, poses many considerations for the investor that impacts private company investment opportunities as well as alternative investment funds.
- Verification. The JOBS Act requires that businesses verify that investors are accredited before accepting any money. Historically, self-accreditation was enough, but now documentation must be provided that proves income status, assets, and other pertinent qualifications.
- Opportunity is being democratized. As the opportunity for entrepreneurship and VC investments are being made available to the non-accredited investor, Title III is set to release a new wave of capital and formalize the process.
- Vetting. Of course, investing in a company isn’t a guaranteed endeavor for a return on your money. The JOBS Act makes it easier than ever to vest an investment opportunity through reviewing the company’s tax returns, legal bills, personal property bills, audit reports, etc. While this won’t replace a diversified portfolio, it can ensure that accredited investors make better decisions.
- It goes beyond crowdfunding. The common misconception is that the JOBS Act is all about crowdfunding and the non-accredited investor, but it impacts the accredited investor as well. Most notably, there are more ways for companies to raise capital, but these opportunities are largely limited to the existing capital that comes from accredited investors.
- Stay private. Before the JOBS Act, companies could only stay private until they reached 500 investors. Now, the cap has been raised to 2,000. This means that companies can continue to raise more money privately for longer than ever before. When companies stay private longer, the benefits for investors are exhaustive as more money is raised.
- Emerging growth company. If a business makes less than $1 billion in revenue per year, it is protected from having to reveal certain information. This deters emerging companies from going public and allows them to continue growing before eventually looking to go public. This law was in response to a trend in Congress denying IPOs throughout the last few decades.
- General solicitation. Private offerings have changed through Regulation D, Rule 506, which was once exempt from SEC registration. Now, the ban on mass marketing to accredited investors with a net worth over $1 million or income exceeds $200,000 has been lifted.
While this overview isn’t a comprehensive summary of the JOBS Act, it does highlight key provisions that matter to accredited investors taking advantage of these risks and opportunities.