The Title III crowdfunding rules, as described in the JOBS Act last month, would allow non-accredited investors to invest in crowdfunding offerings. Title III, as described at this point in time, will allow anyone to invest in startups online. Right now only accredited investors, those with an annual income of $200,000 ($300,000 if married), a net worth above $1 million and/or qualified institutional buyers can invest in startups online. During a recent SEC Advisory Committee meeting, Chairman White predicted the new rules would go through by late October. It’s nearing the end of October and nothing has been put in place.
The slow roll out of the SEC’s Title III rules have been pinned on many factors. The SEC Advisory Committee believes the Commission has an obligation to consider how to best protect small businesses and investors from the possible negative outcomes of this massive scale of crowdfunding. Areas to examine before the release are the efficiency, transparency and affordability for small businesses and investors who would like to make the business arrangement. The aim of the SEC is not to get in the way of either the small business or the investor… that’s why the Title III release is taking so long.
Although this would create a more free crowdfunding space, there are still restrictions. Title III will still pose restrictions on investors based on their income and net worth. It will also still leave restrictions on how much a person can invest and how much a company can crowdfund. Nevertheless, Title III will still have a massive impact on the startup theme we’ve been seeing since the recession. More and more startups are launching and the SEC is just trying to catch up by issuing Title III (which the SEC has been hinting at since 2012) while not getting in the way too much.
According to Fortune, the global crowdfunding market could reach between $90 billion and $96 billion in 10 years. The famous investor Peter Thiel can explain why crowdfunding is so important. He was able to get into Facebook when its valuation was only $5 million. The public wasn’t able to get in until the IPO – by which time the company was worth $104 billion. With the passage of Title III, it would not require the power of Peter Thiel for a person to invest in these powerhouses.
Title III could change personal finance forever. Perhaps instead of investing in index funds, regular citizens begin investing in multiple startup companies. It may be riskier but it may be more rewarding as well. Perhaps it will be worth it for younger investors who can handle the fluctuations.
View the official Title III rules by visiting the Office of Information and Regulatory Affairs.