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Crowd Funding Startups

13 Jun

The Jumpstart our Business Startup Act allows companies to raise needed capital outside of their own personal investments.

Have you always wanted to run with the big boys as a venture capitalist.  It is now possible for those who are not considered qualified investors by the Securities Exchange Commission (SEC).  The the regular investor is getting some help in a new law going to be put into place in the U.S..  This law will make it easier for ordinary investors to invest like venture capitalists.  It is intended to boost new start up companies.  The Jumpstart Our Business Startup (JOBS) Act allows fledgling companies to raise up to $1 million per year by traversing the internet for investors to secure badly needed capital.

This process is good news for startups however there is risk for the investor.  It works like this:  Startups will issue securities on online portals registered with the SEC, or through brokers.  Investors get the info about the risks of investment, the financial health of the company and how it expects to use the money raised.  Which should not be confused with a traditional prospectus —  nor is there the same level of disclosure.

This is a definite investor beware situation.  It is well known that only 45% of startups last more than five years. The JOBS Act recognizes this risk and applies limits.  Investments are limited in the amount that can invested in total.  For the ordinary investor whose net worth is less than $100,000 excluding the value of their home, they will only be allowed to invest the greater or $2,000 or 5% of their assets.  For the other investors whose net worth is more than $100,000 their investment is capped to 10% of their income or up to $100,000 of their net worth.  Generally with the investors holding the investments for 12 months.

Online Funding Portals:

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Posted by on June 13, 2012 in Featured

 

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