By: Jason Warner.
For decades, startups relying on venture capital flocked to Silicon Valley to entice investors there to take a chance on their ideas. The VC world grew up around prominent capitalists like Bill Draper and his family. It continues today but new ways of raising are allowing the general public to take advantage of an early move into a potential winning stock.
The Jumpstart Our Business Startups Act, or JOBS Act was passed into law in 2012 with the SEC finalizing the rules in May of 2016. This allowed non-accredited investors to put money into private companies for equity. In other words, this opened up an equity investment in a non-publicly traded company by everyone based on certain investment limitations. Imagine buying into Apple or Google before they went public. With this move by governments around the world, entire new industries started popping up like crowdfunding platforms and marketing teams that focused on maximizing the raise for their fund-raising clients.
Until the announcement by the SEC to expand the amount that could be raised in a year as well as how companies promoted themselves to investors, the Regulation CF cap raised was $1.07 million and little could be said about the offer. The cap is now being raised to $5 million per year and will be effective sixty days after recording these rule changes in the Federal Register. Expect that to happen in early 2021. As well, companies can promote more effectively and some rules around what any individual investor can invest have changed.
Will this mean the demise of Venture Capital as it has come to evolve? Not at all. VC’s are joining in by becoming very active on the crowdfunding portals like Republic, StartEngine, and Wefunder. Several investors have been aligning with these platforms to offload some investment risk and build a solid pipeline of vetted startups. Tim Draper and his television showMeet the Drapers has been working with Republic for several years and you will find many of his show participants on the Republic platform.
Innovators in the Edge Computing, Artificial Intelligence, Blockchain, and other new technology space will reap the benefits of this change from $1.07 million to $5 million. It can mean that they have more capital to bring their tech to market without immediately having to go back into the fund-raising mode as soon as the first amount is raised. It also means that they can raise in a series of tranches over the course of a year where they can level up their market capitalization without a significant upfront dilution.
