Equity Crowdfunding for Non-Rich People Is Coming
Wednesday, May 11, 2016
Today—unless you have a net worth of at least one million dollars, or an income of at least $200,000 per year—it is not legal for you to receive equity in exchange for backing a company on a crowdfunding site. But as of next May 16, Title III of the JOBS Act goes into effect, bringing equity crowdfunding to the 99%.
Welcome. Here’s what you should know:
What is Title III of the JOBS ACT?
The “Jumpstart Our Business Startups Act” (the JOBS act), which aims to make it easier for new companies to raise money, passed Congress in 2012. Title III is the part that makes rules for non-accredited crowdfunding.
What is different now?
Projects, and some companies, already raise money from anyone on crowdfunding platforms like Kickstarter and Indiegogo, but aside from a reward here and there (nice T-shirt, bro), “investors” on these platforms don’t get or expect anything in return. A bunch of other websites like CircleUp, Crowdfunder, and WeFunder, which call themselves “equity crowdfunding platforms” allow investors to fund companies in exchange for real securities. These platforms could previously only work with “accredited investors” (those rich people we mentioned earlier). Under the new rules, they can technically open fundraising to anyone.
Investors who make less than $100,000 a year can now invest up to either 5% of their annual income, or $2,000, whichever is greater. Investors who make more than $100,000 a year can invest up to 10% of their annual income, but they cannot invest more than $100,000 in one year.