Based on the current U.S. Securities and Exchange Commission (SEC) regulations, most startup investment opportunities are available only to accredited investors. An accredited investor is defined under rules set by the SEC.
You are an accredited investor if you meet one or more of the following criteria:
MicroVentures is an equity crowdfunding platform enabling individual accredited investors to make equity investments in startup and early stage businesses. MicroVentures conducts extensive due diligence and provides detailed profiles of each company we select as an investment opportunity. Potential investors are able to review the profile and solicit questions, which will be answered by one of our Series 7 licensed brokers.
MicroVentures pools the funds from each of the investors into a single limited liability company (“LLC”). Each of the investors becomes a member of the LLC allocated based on their percentage participation in the pooled fund. MicroVentures then uses the aggregate funds in the LLC to make an investment in the company or venture featured in the offering. The LLC is issued equity, a convertible note or other investment securities.
On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups (JOBS) Act. The JOBS Act has facilitated a substantial reduction in the regulatory burden surrounding financing activities for small companies in public and private capital raising transactions.
The JOBS Act consists of seven sections, or Titles, all detailing certain provisions of the law.
While each provision influences capital formation for small business in some capacity, Title II and Title III have a disproportionate impact on crowdfunding.
Title II of the JOBS Act is related to private placement transactions executed under Rule 506 of Regulation D. Title II charges the SEC with eliminating the general solicitation and advertising bans in connection with Rule 506 offerings. Prior to Title II, entrepreneurs seeking capital had to have a “substantial and pre-existing relationship” before including an investor in a private placement securities transaction. On September 23, 2013, Title II was implemented by the SEC allowing companies to advertise their offerings to potential accredited investors under the newly implemented regulation 506(c). By allowing issuers to solicit or advertise their offerings more publicly, the investor pool for startup capital has greatly expanded.
The most impactful provision to crowdfunding is found in Title III of the JOBS Act. Title III, once implemented, will effectively allow non-accredited investors to invest in startups. As it stands, equity crowdfunding is limited to accredited investors. While Title III was passed with the JOBS Act, the SEC has yet to publish final rules, meaning market participants cannot take advantage of Title III. As a result, several states have sidestepped the SEC and introduced laws, each with different nuances, allowing intrastate crowdfunding for residents not meeting the federal accredited investor definition. Title III, once implemented, will dramatically increase the pool of available capital and increase capital formation for small business in the United States.
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