My point here is simple: when stupid idea after stupid idea attracts investors, it’s a forward indication that a market is too frothy. When a market sees repeated examples of industry participants making things up, it’s a forward indication that a market has become dangerous.
When “true” equity crowdfunding launched on May 16, 2016, Wefunder led the new asset class with 10 Title III offerings. Within a few days it added 11 more offerings. No other funding portal that I know of has half as many Title III offerings as Wefunder.
Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012 allows all investors, regardless of income or net worth, to invest in startups and growing private companies via funding portals that are registered with the Securities and Exchange Commission.
Title IV of the Jumpstart Our Business Startups (JOBS) Act of 2012 expands the moribund Regulation A exemption by increasing the raise limit from $5 to $50 million. Non-accredited investors could participate in Reg A offerings before 2012, and they still can under Title IV but with certain limits.
The Jumpstart Our Business Startups (JOBS) Act was signed into law in March 2012. Title III of the act, which legalized equity crowdfunding, could not launch until the SEC issued final rules for the operation of funding portals.Meanwhile, some states decided to get their own jumpstart going. Relying on the intrastate exemption from SEC registration, at least 24 states—led by Kansas and Georgia—have enacted legislation or promulgated regulations that allow unlimited numbers of non-accredited investors (everyone) to participate in small private securities offerings.
Two kinds of intermediaries may conduct Title III equity crowdfunding offerings and transactions: (1) funding portals that are not registered broker-dealers, and (2) offering platforms that are registered broker-dealers. Both kinds must be registered with the Securities and Exchange Commission (SEC).
Angels often provide the first round of “outside” capital—that is, outside of the founders’ employees, family, and friends (the three Fs). Angel capital may be in the form of straight debt, convertible debt, or equity
Smart entrepreneurs, some Title III crowdfunding skeptics say, do not want hundreds or thousands of unsophisticated angel investors mucking up their capitalization tables, annoying founders with questions, suggestions, job applications, and—gulp—complaints.
Crowdfunded equity investments are generally illiquid for two reasons: (a) the one-year holding period and (b) the lack of organized secondary markets for Title III shares.
The first step in the seven-step crowdfunding investment plan is to calculate the maximum amount of money that you are allowed to invest each year in Title III offerings.