Although the Jumpstart Our Business Startups Act (JOBS) was signed into law almost a year and a half ago, implementation of key provisions of the law has been slow to occur. The Act is intended to encourage investment into small business by removing many of the regulatory barriers to crowdfunding platforms. Generally, crowdfunding refers to the concept of soliciting direct investment from a large pool of investors, usually through the internet. Up until the passage of the JOBS Act, securities regulation prevented soliciting direct investment from the general public unless the venture went through rigorous and onerous registration requirements through the Securities and Exchange Commission.
While the ban on general solicitation has been implemented, the SEC has yet to issue regulations regarding Title III of the Act, which deals directly with crowdfunding. The agency was required to have issued rules implementing Title III by the end of 2012, which it has not done to date. As a result, the crowdfunding provisions of the Act have not taken effect, leaving many eager entrepreneurs and investors to eager to explore other avenues.
States taking the lead on crowdfunding
Some states are trying to beat the Feds to the punch by implementing their own state-level funding initiatives. In fact, some observers believe that changes currently occurring on the state level may make the crowdfunding provisions of the JOBS Act irrelevant. In a recent piece published at venturebeat.com, Kevin Lawton makes the argument that state crowdfunding legalization and state banks will moot the JOBS Act. To date, Kansas and Georgia have passed laws allowing using crowdfunding to solicit investment from nonaccredited investors under certain conditions, and similar legislation has been proposed in North Carolina and Washington State. According to Lawton, state banks will invigorate these crowdfunding initiatives by creating a stable and accessible capital base available to investors. As he states in his article:
“State-wide crowdfunding and banking go hand-in-hand because public banking creates a stable long-term-focused base of capital creation, decentralized into 50 competing states. Then, crowdfunding builds on that capital base, creating a velocity of investment money allocated in an even more decentralized and competitive fashion thereafter.”
States may be better positioned to respond to the market requirements and realities than the federal government, and will also be able to make changes to their respective laws more quickly. As a result, crowdfunding on the state level may take hold before the JOBS Act crowdfunding provisions are implemented. Investors and entrepreneurs in states that have created crowdfunding exemptions should be certain to fully research and understand the regulations in their state. A column published at Bloomberg Law has a helpful chart explaining the differences between the JOBS Act and the laws in each of the four states that are considering or have passed crowdfunding legislation.