In our fourth and final post on equity crowdfunding regulations, we’re discussing Title III of the JOBS Act, which went into effect on May 16, 2016. With the popularity of crowdfunding, especially its use to raise funds for a variety of fledgling products and companies, Title III is intended to provide startups with the opportunity to raise the capital they need to grow and develop while ensuring investors are “protected,” so to speak.
Title III allows both accredited and non-accredited investors to participate in a startup’s capital raise, but there are limits to how much can be invested. If an individual investor’s annual income or net worth is less than $100,000, the investor’s investment limit is the greater of $2,000 or 5% of his or her annual income or net worth (whichever is lower). If an investor’s annual income and net worth are each $100,000 or more, no more than 10% of his or her annual income or net worth (whichever is lower) can be invested per year. Spouses can calculate their net worth and annual income jointly, but total securities sold to an investor under Title III cannot exceed $100,000 per year, regardless of annual income or net worth.
Startups can raise up to $1 million in a 12-month period. The startup must disclose information about the company, such as the names of the company’s officers and directors, how the proceeds will be used, the target offering amount, the deadline, and certain financial information. The type and depth of the financial information the company is required to provide varies depending on the amount of the target offering and whether or not the company has raised money under Title III before:
- If the startup is raising $100,000 or less, it must provide investors with financial statements and certain specific line items from income tax returns, both of which must be certified by the principal executive officer of the company.
- If the startup is raising $100,000.01 to $500,000 it must have the financial statements reviewed by an independent public accountant. The accountant’s review report must be certified by the principal executive officer of the company and provided to investors.
- If the startup is raising $500,000.01 to $1 million for the first time, the financial statements must be reviewed by an independent public accountant, and any resulting review report must be provided to investors. Companies raising under Title III for a subsequent time must have the financial statements audited by an independent public accountant, and the accountant’s audit report must be provided to investors.
Each regulation crowdfunding offering must be exclusively conducted through one online platform that provides investors with resources and education to ensure that investors are able to make informed decisions. The intermediary operating the platform must be a broker-dealer or a funding portal that is registered with the SEC and FINRA, such as First Democracy VC, a registered funding portal formed through a partnership between MicroVentures and Indiegogo. Not a MicroVentures investor? Sign up today.
That does it for our series on equity crowdfunding. If you’ve missed any of our other posts, you can review the four options here.