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.”
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.
“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.
“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.