We’re now nearly two years into Title II of JOBS Act. Since enacted, startup companies can raise funds by publicly advertising that they are doing so. However limited to accredited investors (people who have made more than $200,000 per year for the past three years and are likely to do so for the current year or have a net worth over $1 million), Title II turned equity crowdfunding into reality, in spite of the fact that it was not exactly aimed at crowdfunding.
Before the JOBS Act Title II (and even under Title I), raising funds from a larger pool of investors for a company was an expensive and cumbersome task, available only to those companies that could spend millions in regulations to get listed in stocks exchanges. Startup companies could not advertise they were raising funds, and barely could take money from even accredited investors. Instead, they should seek venture capitalists or angel investors who would decide whether or not they would invest their money in the new business.
Now that Title IV was enacted, non-accredited investors can take part in startup investment as well. However, many specialists are still a bit skeptical whether or not that’s the ideal way for a company to raise money. Actually, there are some requirements on audits and reports that can make Title IV expensive for smaller companies, so that raising funds via Title II, with accredited investors only, will work best most of the times for many companies.
Title II has some specific requirements for companies. We’ll list the most important ones here, but you’re advised to check with your lawyer before starting the funding process:
• Company must file a SEC Form D before making the offer public. Details about the offer must be disclosed 15 days after soliciting fundraising;
• Companies have to check whether all investors are accredited. If an unaccredited investor takes part in the round, the company can be banned from fundraising for one year;
• Investors can prove their accredited status via IRS forms or written confirmation by CPA, investment advisor, broker-dealer or attorney.