One of the goals of The Jumpstart Our Business Startups (JOBS) Act, signed into law by President Obama in April 2012, was to open up new channels for small businesses and startups to raise money. The Act contains a provision to let small companies "crowdfund" – that is, sell stock and other securities over the Internet directly to the public. Although the JOBS Act legalized securities-based crowdfunding, this new method of democratic investing is still developing. Currently, individuals may donate money to a company or project in return for non-monetary rewards or prizes. However securities-based crowdfunding will not be permitted until the Securities and Exchange Commission (SEC) finishes rules and regulations to govern the marketplace. In the meantime, a number of crowdfunding platforms, including 99Funding, are operating under the safe harbor provisions of existing securities laws, facilitating investments between companies and qualified, accredited investors.
Title III of the JOBS Act liberalized some of the most restrictive private placement rules and created a new, limited exemption for securities crowdfunding. First, the rule prohibiting general solicitation was removed, so issuers will soon be able to provide information about their offerings to the public through an Internet platform such as 99Funding. Investors still must be accredited, and issuers and their placement agents will assume a greater burden to verify the status of the investors, but the so-called advertising restriction was eliminated. Second, the crowdfunding rule will allow all investors to invest modest amounts in private securities placements of up to $1 million. This new law promises to revolutionize private investment markets by making it possible for companies to raise financing through securities crowdfunding from ordinary investors.
Regulatory guidelines to implement the JOBS Act are currently being developed by the Securities and Exchange Commission, and FINRA will be responsible for carrying out this implementation. We expect the general solicitation rules to be promulgated by March 2015, with the general crowdfunding standards to follow later in 2013.
99Funding currently allows registered accredited investors to view confidential private offerings on its secure, online platform. When the prohibition on general solicitation is lifted, these offerings will be publicly disseminated, and when Title III crowdfunding is permitted, 99Funding will allow all investors to invest in private offerings, according to the terms of the JOBS Act and the regulations that implement it.