Title III of the JOBS Act will make investing in small businesses and start-ups much easier for any non-accredited investor. But the risk associated with such early investments may outweigh any potential benefit.
May 16, 2016 will bring on a new environment in the world of equity crowdfunding with the implementation of Title III under the Jumpstart Our Business Startups (JOBS) Act. The final rule of Title III under the JOBS Act that will come into play in May will be the first time that non-accredited investors (i.e. any citizen) can invest in an established small business or business start-up in exchange for an equity share. This rule means that anyone can invest via special Financial Industry Regulatory Authority (FINRA)-registered platforms and brokers in privately held companies and become an equity shareholder.
There has been a lot of discussion about the popularity of such a funding option because now the early stages of a business can receive funding from those close to them. Brian J. Burt, the business lawyer in Phoenix, Arizona with Snell & Wilmer, stated, “Title III crowdfunding has the power to democratize the funding process and give millions of aspiring entrepreneurs access to the capital required to start and grow their companies. To harness that power of crowdfunding, an entrepreneur will need to offer a compelling story as to why their idea deserves to be funded – a story that goes well beyond a promised return on investment.”
Small businesses and start-ups alike are eager to utilize this new funding option to add to their financing mix. Potential investors get excited when seeing things like a chart shared by Mashable that was widely shared on social media when viewers see the missed opportunity of earning $239,000 if they had just invested $1,000 early in Amazon. However, investing in the early stages of a business is often risky, and there is a reason accredited investors tend to stay away from the practice.
Since 2008, the amount of American businesses that have been forced to close their doors has outweighed the number of businesses opening every year; on average, 400,000 new businesses launch every year while 470,000 close their doors. There is a multitude of ways for a small business to keep their companies going, and the economy right now is a great time for investing in small businesses because interest rates are so low. The past 30 years, however, have seen a steady decline in business startups, and the implementation of Title III may put a large amount of risk in the hands of potential investors.
Capital advances through Wellen can give small companies the chance to bring in capital through a quick process with a trusted partner. While startups have been steadily declining, small businesses that are already on their feet and are looking for a chance to grow their business or counteract a rough patch have other funding options at their disposal than equity crowdfunding. The easy, perhaps even automatic, repayment process of a capital advance allows business owners to focus on the goals of their company to keep pushing forward in the great economy for small businesses we currently have.