The Jumpstart our Business Startups (JOBS) act has been getting a lot of press for allowing “crowd funding.” For the most part, when you think “crowd” you think of something like the company Kickstarter that I talked about last week, and it is… sort of. Kickstarter may be the closest thing we have to “crowd funding” today, but it’s not exactly what Kickstarter does. Kickstarter requires a “benefit” or advanced sale of a product for the investment to be made. This makes it like buying something from a firm that you’re afraid might go out of business, not like buying a stock. The new bill would actually allow you to buy those stocks, it would allow people who make $100,000 or more per year to invest up to $10,000 in companies that solicit funding on a web portal that is licensed to facilitate such transactions
That’s not the most interesting part for me though. The bill also greatly changes the rules around raising money in the “friends and family” round. Today, companies can only raise money from 35 non-accredited investors (banks, funds, trusts or people with more than $1M) without registering to be publicly traded. The new bill raises that number to 500. For many companies this effectively allows them to raise as much capital as they like in the “friends and family” round. In fact if you’ve got rich uncles (and/or rich friends) this may let you put off an institutional (VC) round for quite some time. Pretty cool.