The JOBS Act: Crowdfunding for Small Businesses and Startups

On April 5, 2012, President Barack Obama signed the Jumpstart Our Business Startups Act, better known as the JOBS Act. The act is designed to "reopen American capital markets to small companies," defined in the act as Emerging Growth Companies. This is one of the most significant legislative initiat [...]
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On April 5, 2012, President Barack Obama signed the Jumpstart Our Business Startups Act, better known as the JOBS Act. The act is designed to "reopen American capital markets to small companies," defined in the act as Emerging Growth Companies. This is one of the most significant legislative initiatives in finance since the Securities and Exchange Acts of 1933 and 1934, and it opens up funding to a slew of companies previously shut out of the capital markets. Here's the good news: Small businesses and startups will be able to raise up to $1 million in equity (or debt) funding online via what are called Crowdfunding Platforms--online communities and websites. Imagine an eBay-like site that allows you to post your idea for a commercial venture online and then allows investors to purchase equity shares or stakes in it. As one journalist put it, it's "social media meets venture capital." How can you get in on the new funding opportunities? That's what The JOBS Act: Crowdfunding for Small Businesses and Startups is all about.Investment expert William Michael Cunningham shows how the new law will enable you to use the internet to raise significant amounts of capital funding for your startup. After discussing briefly the development and implementation of the law, what it means, and how it will impact the business startup marketplace, he delivers the nuts and bolts of how to take advantage of the JOBS Act to access new sources of capital for your small business or startup. As you'll see, the act has the power to unleash a new wave of innovation, increase employment, and set many more average entrepreneurs and investors on the road to wealth. Not just for entrepreneurs, The JOBS Act: Crowdfunding for Small Businesses and Startups will benefit investors, securities lawyers, community development specialists, educators, venture capitalists, and those offering services in the new crowdfunding arena. It is, simply, the most current and most comprehensive compendium of information on the law and its impact on this new market.What you'll learn What the JOBS Act is and why it's needed The JOBS Act's definition of "crowdfunding," "crowdfunding platforms," and "emerging growth companies" How to get up to $1 million through crowdfunding The risks and rewards of taking advantage of JOBS Act How to stay on the right side of the law when soliciting funds How to identify and deal with reliable crowdfunding platforms and companies How businesses owned by women and minorities can raise new capital, as well as those now shut out of the capital markets (restaurants, day-care centers and others ignored by finicky venture capitalists and skittish bankers) How investors can identify opportunities, avoid fraud, perform due diligence, and then make an intelligent investment Who this book is for The JOBS Act: Crowdfunding for Small Businesses and Startups is for people who are wondering how the JOBS Act can help them finance their dreams, for the small-business executive seeking capital, for the community development executive seeking to finance community businesses, and for executives at large companies wondering about the impact the act might have on their firm.It's also for investors who need to understand the risks involved in buying equity in small firms, angels and venture capitalists who must understand the nature of the new kid on the funding block, and securities lawyers and other advisors and consultants to start ups. The JOBS Act: Crowdfunding for Small Businesses and Startups is an excellent choice for people who need to understand the nuts and bolts of new business opportunities that will be generated by the Act. Table of ContentsIntroduction The JOBS Act represents a fundamental change in the business financing environment. Many companies previously blocked out of the market will now be able to obtain funding. This could and should lead to many more business success stories, as well as many more product and service "disruptions" across the board. The introduction will review the history of the Act, noting who wrote it and outlining the legislative players and timeline as well as their overall expectations. Part I: Summary of the JOBS Act Part I covers the basic thrust of the law and what it hopes to accomplish.Chapter 1: The Act: Summary and Definitions The law targets emerging growth companies and defines them as an issuer with "total annual gross revenues of less than $1 billion" during its most recently completed fiscal year." These firms are now exempt from certain reporting requirements.To understand the law, you must know the precise meaning of several terms, including "Emerging Growth Company" and "Crowdfunding." In addition, it's important to understand the set of institutional arrangements that govern the market for startup financing. Using examples, charts, and graphs, I will describe the marketplace. Chapter 2: The Startup Financing Environment: Why Now? Using information on startup business capital flows, I will describe how startups are currently financed. The impact of the financial crisis on the availability of capital for startup business financing will be described in detail. Part II: Disclosure One of the major changes promulgated by the JOBS Act is the change on financial disclosures.Startups are relieved from many of the more burdensome accounting and reporting requirements, especially requirements that are imposed by the Securities and Exchange Acts of 1933 and 1934. This section will describe these changes in detail, and provide sample before-and-after financial statements. Chapter 3: Emerging Growth Companies Emerging Growth Companies are defined as firms with less than $1 billion in revenue. This is a large and amorphous grouping. I will present charts and graphs showing the number and type of firms in this category. In addition, I will describe characteristics of companies in this group and how they might take advantage of the new law. Chapter 4: Accounting and Other Standards Accounting and other information standards and regulations have been significantly reduced for Emerging Growth Companies. This chapter will enumerate those changes. Chapter 5: Crowdfunding Crowdfunding can be described as social media--enabled business financing. Startups and others use crowd financing to raise capital for business ventures. Startups, special ventures, and small- and medium-sized businesses can all use crowdfunding.This chapter outlines the short history of crowdfunding and the huge impact the law will have. Chapter 6: Funding Portals A Funding Portal is, according to the law, "any person acting as an intermediary in a transaction involving the offer and sale of securities for the account of others, solely pursuant to section 4(6) of the Securities Act of 1933 (15 U.S.C. 77(d)(6))." In plain English, it is a website that facilitates the creation and sale of equity (or debt) securities issued by startups. If eBay, for example, were to allow people on their site to sell shares of stock in new ventures, it would be a Funding Portal. This chapter will detail how portals operate and what it takes to become one. Part III: The Act, by Title In the final third of the book, I offer verbatim language of the JOBS Act, along with my commentary on each section. This will be important, as sometimes citizens can "set the rules" and influence the practical ways the law can be applied before regulators start codifying it.Chapter 7: Title I -- Reopening American Capital Markets to Emerging Growth Companies Commentary Chapter 8: Title II -- Access to Capital for Job Creators Commentary Chapter 9: Title III - Crowdfunding Commentary Chapter 10: Title IV -- Small Company Capital Formation Commentary Chapter 11: Title V - Private Company Flexibility and Growth Commentary Chapter 12: Title VI -- Capital Expansion Commentary Chapter 13: Title VII - Outreach Commentary Appendix Crowdfunding sites