JOBS Act Simplifies Crowdfunding

by Categorized: Startup Tagged: , Date:

U.S. President Obama signs the Jumpstart Our Business Startups Act in the Rose Garden of the White House in Washington. Congressman John Larson can be seen in the upper right. (REUTERS)

The Jumpstart Our Business Startups (JOBS) Act, legislation designed to make it easier for startup companies to attract investors, will be signed into law by President Obama Thursday.

The JOBS Act — a rare bipartisan bill — will provide crowdfunding as a legal option for startups.  Before the JOBS Act, entrepreneurs could only hope to attract the attention of accredited investors, but now startups raising $1 million or less will be permitted to let anyone purchase a limited amount of equity capital.

According to research done by the Kauffman Foundation, from 1980 to 2005, firms less than five years old accounted for nearly all net job growth making it clear why both parties would get behind this bill.

“The JOBS Act takes the training wheels off of angel investing and is great for entrepreneurs,” Ted Yang, angel investor and Stamford Innovation Center founder said.  “It isn’t just millionaires who have the capability to invest in startups.”

Not everyone believes the JOBS Act is a good idea, though, saying that it leaves non-accredited investors susceptible to get-rich-quick scams and investments that are too good to be true.

To avoid such pitfalls, Derek Koch, the Founder & CEO of Independent Software in New Haven, makes a couple of suggestions: remember that startups are risky investments and invest through only reputable, preferably accredited sites.

“Investing in a startup is different from buying shares in a more established company,” Koch said.

Frank Marco, a partner with the New Haven law firm of Wiggin and Dana, feels the motivation behind the bill is sound because innovation is what will drive the economy.

“Crowdfunding sounds good in concept,” Marco said.  “I am concerned about the horror stories in terms of someone being defrauded.”

Marco says the success on the bill hinges upon the regulation.

“It won’t be the wild west out there, [crowdfunding] will be regulated by the SEC,” he said.

Sarah Krikorian, a member of the Gabinja team I met at Startup Weekend Stamford, feels the legislation will only serve to help them getting their company off the ground.

“While I understand the concerns of the investment community over aspects of this legislation, I see the overall effect of the JOBS Act as positive,” Krikorian said.  “If enacted this legislation will open doors to new sources of financing for small companies like Gabinja.”

Yang says the Stamford Innovation Center is planning on hosting angel training classes and intends on tailoring the course to fit news JOBS Act requirements.

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