The new Securities and Exchange Commission (SEC) regulations, are expected to make it easier for entrepreneurs to raise capital by reaching a larger audience of accredited investors using advertising and social media channels such as Facebook and LinkedIn.
The JOBS Act is ultimately expected to pave the way for securities-based crowdfunding under Title III of the Act. With this implementation, the startup ecosystem will see an 80-year-old securities law modified for modern times, allowing private companies – startups in particular – to publicly advertise that they are seeking investments.
According to the Center for Venture Research, only 258,000 investors have made an angel investment out of the 8.7 million accredited investor households eligible to invest in the U.S. The general solicitation ban lift will allow startups to publicly fundraise via methods such as equity crowdfunding, harnessing the power of the internet and social media to reach potential investors in all corners of the country.
For the first time, private offerings of shares to accredited investors can now be advertised publicly – thereby allowing greater transparency for private investments. The JOBS Act made this happen by lifting the ban on general solicitations for what are known as SEC Reg D offerings.
A 2013 UBS report, Investment Strategy Guide, recommends that 7 to 11% of any given investment portfolio be allocated to new alternative investments, which includes buying equity in early stage companies (note that only accredited investors may participate in private offerings).