Investing in equity of companies in their early stages of formation vary globally by country. Countries like the UK have taken a relaxed approach to regulating, especially compared to the US. Regulatory agencies put in place restrictions in an effort to protect average investors. The balance to provide equal access to all and protecting people's financial future is hotly debated.
As of May 16, 2016 in the US Investors from all wealth classes are able to participate in private capital markets. Accredited investors can invest in private small businesses with little restriction and now non accredited investors can join this exclusive group. FundWisdom is at the forefront of the JOBS (Jump-start Our Business Startups) Act Title III, which will enable unaccredited investors to take part in these investment opportunities.
JOBS Act Title III Equity Crowdfunding
Title III of the JOBS Act was passed October 2015, but it took till May 2016 to enact the updates. SEC Chair Mary Jo White had delayed issuance, but the markets is becoming more democratized now that investors of all economic classes can participate. The approval of Title III of the JOBS Act makes it possible for non-accredited investors to invest in startup businesses and private firms.
This will allow for larger groups of people to invest smaller amounts of money. As one of the most awaited components of the JOBS Act, Title III opened a road of possibilities for non-accredited individuals to invest in private equity offerings, but restrictions have severely limited the potential.
It is now possible for every individual, not just the wealthy and rich, to invest in the startups. Title III disrupts capital markets by bringing a huge change in the world of investment that was previously reserved for wealthy individuals or fund managers like venture capitalists and angel investors. Everyday citizens will also be able to participate in the investment or the fundraising process, regardless of their bank balances. The technological breakthrough has already begun the process of automating and streamlining costs, and opened up further avenues for startup and private businesses to raise capital.
Non-accredited investors will be bringing more capital to these private markets. Many investors will be putting their money in the market for the first time, but it is important to understand that they are not entirely new to this. Many ideas were usually funded by friends and family at the initial stage. Title III will enable entrepreneurs and new entrants to create their personal network to raise capital and will also allow accredited as well as non-accredited investors to invest their money.
The changing regulatory landscape has enhanced entrepreneurs' chances of success, improve economies and increase jobs. This increase in capital allows more individuals to bring big ideas to market and turn their strategic vision into a reality. Startup businesses benefit from this rule, as it provides an opportunity for long-term success and ongoing development by bringing entrepreneurs closer to future investors.
Equity Crowdfunding can also in theory reduce the costs of raising money through offering equity through reducing costly middle men by directly linking the end investor and entrepreneur seeking capital. The market can also help reduce the costly regulatory burdens of traditional public offerings.
The Securities and Exchange Commission (SEC)
The U.S. SEC uses the EDGAR database to help keep track and regulate the equity offerings. We at Fund Wisdom pull in the listings of offerings to offer the ability to search and visualize the data for research and analysis.
Restrictions and Challenges
SEC rules are costly and overly complex continuing to perpetuate the hurdle for business owners and investors. There are caps on investors and businesses for how much can be put in per year and how much can be raised.
The SEC States, "Because of the risks involved with securities-based crowdfunding, you are limited in how much you can invest during any 12-month period in these transactions." The limitation on how much you can invest depends on your net worth and annual income.
If either your
- annual income < $107,000, or
- net worth < $107,000,
Then during any 12-month period you are capped at investing
- $2,200 or
- 5% of the lesser of your annual income or net worth.
If both your
- annual income and
- net worth >= $107,000,
then during any 12-month period, you can are capped at investing
- up to 10% of annual income or
- net worth, whichever is lesser, but not to exceed $107,000.
Fund Wisdom Outlook
We currently rely on accounting agencies and legal firms ourselves as we do not have this expertise in house. Today we focus on our research and analysis of the market data we collect. We encourage you to work with an expert which we list a few that focus on equity portals.
We believe the current regulatory framework in the US has continued to be overly restrictive, hindering the development of the equity crowdfunding market. Progress has been slow. Those who were previously skeptical have started acknowledging the concept. Many venture capitalists and angel investors are utilizing platforms to get funding from other accredited investors. As an investment vehicle, equity crowdfunding improves success for individuals seeking an investment opportunity and for those who want to finance their ideas and cover the startup cost.
At Fund Wisdom we believe innovative wealth building investments should be accessed by all, as we look to empower the democratization of private equity. Overarching returns for alternative-assets like private equity have outperformed the stock market through the greater risk profile. We showcase investment opportunities in early stage companies to produce higher returns, lower fees, and reduced risk.