By David Drake
Businesses and ventures seeking capital should look forward to the new market trends and exciting developments this 2014. New laws will open up more opportunities and dozens of ways to secure financing and get funding.
Jumpstart Our Business Startups Act (JOBS Act) and Equity Crowdfunding
April 5, 2012 – JOBS Act was signed into law by President Barack Obama. Bringing a paradigm shift to financing, the six bills underlying the JOBS Act moved slowly through the SEC proposals and approval processes in the last 20 months.
Year 2013 – Under the new leadership of Chairman Mary Jo White at the SEC, the year 2013 became the starting year for milestones in favour of the entrepreneurs and investors who are designed to benefit from these laws.
September 23, 2013– Historic date for the passing of guidelines of JOBS Act Title II or the lifting of the ban on general solicitation took effect. This allows for entrepreneurs to solicit to the public to reach accredited investors.
October 23, 2013 – SEC proposed new rulings for JOBS Act Title III which would allow for non-accredited investors to participate in equity crowdfunding; this has also been submitted for a 90-day public commenting, and approval is expected around May 2014.
December 18, 2013 – The SEC proposed a modification to Regulation A known as “small offering exemption,” becoming the dubbed Regulation A+. The modification accounts for the raising of the limit for offerings of securities within a 12-month period from $5 million (Tier 1) to $50 million (Tier 2), allowing smaller companies to choose either Tier 1 or Tier 2. This will enable many small businesses to raise capital without SEC registration and increase access to capital.
Here are the new updates that drive the trends and perspectives of financing capital:
General Solicitation Ban Lifted – The removal of the General Solicitation Ban will prove to be one of the most powerful changes to the US Securities Laws in 80 years.
Positive Impact on Small Business Capital Formation – As Wall Street seeks access to large customer base for distribution of securities, a power shift and a significant alignment to Silicon Valley will commence. The power and efficiencies of Web 3.0 and Social Media will begin to disrupt traditional capital formation and distribution.
All Access on Social Media and Advertising (No Restrictions!) – The ability of Private Companies to advertise their securities will also achieve a dual benefit. The issuer advertises their products or services to vast and new potential customers cost-effectively by utilizing social media, internet, email, blogs, TV, press releases, interviews, and the like.
Paradigm Shift: Offerings of Unregistered Securities – Annual Unregistered Securities Offerings in the US will greatly surpass Registered Securities Offerings as the financial services community begins to embrace this paradigm shift in capital formation. In 2011, SEC documented that $895 billion Unregistered Securities Offerings were raised versus $984 billion in registered offerings..
Established Broker Dealers and Financial Institutions – The larger and established broker dealers and financial institutions will begin to implement Title II strategies. With the second law of the JOBS Act, called Title 2, you can have a Regulation D 506c, and consequently advertise. We will see consolidation of the first movers in the sector via Mergers and Acquisitions.
How these developments can financially influence entrepreneurs:
Global Reach: New investors, mentors and advisors can bring in more knowledge and varied expertise into their business.
Tap New Markets: New markets and service providers will add to their mix of resources.
Create Customers: Customer creation and conversions from the increased awareness of their products and services will be brought by solicitation activities for investors.
Brand Partnership: Co-branding with established firms as well as new and innovative startups, both at investor and service provider levels would be interesting to watch and develop.
Present and future entrepreneurs can tap into these developments toward initial capital raise. There are a lot of innovative ways to fire up your business existence, and one of these is undoubtedly adopting the crowdfunding approach.
David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City private equity advisory firm, and The Soho Loft – The Voice of Capital Formation – a global financial media company. You can reach him directly at David@LDJCapital.com.