NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, May 9, 2016

The new rules are well-meaning, but flawed.

In the very near future, equity crowdfunding will no longer be reserved for the ultra-wealthy.

That’s thanks to the Securities and Exchange Commission passage of Title III JOBS Act, which goes into effect May 16. It’s a turning point for entrepreneurs and investors alike. Before that date, only accredited investors — individuals with a net worth of more than $1 million or annual income of more than $200,000 — could take an equity stake in a private company via crowdfunding. After May 16, anyone can participate.

Exciting, right? Entrepreneurs get a new way to access capital, and ordinary investors get the chance to take an equity stake in a potentially high-growth private company. It’s a win-win!

Not so fast. Unfortunately, the final regulations surrounding Title III pose significant problems for both investors and founders.