The JOBS Act Demystified for Startup Entrepreneurs

Three New Ways for Startups to Raise Money in the JOBS Act — An Interview with Jeremy Glaser from Mintz Levin

“The problem with socialism is that you eventually run out of other peoples’ money.” — Margaret Thatcher

In this interview with Jeremy Glaser from Mintz Levin, we discuss the JOBS Act (Jumpstart Our Business Statups Act). Jeremy explains why the JOBS Act is important and gives his opinions about the most relevant parts about the legislation and regulatory implementation by the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). This is a piece of legislation that intended to facilitate funding of small businesses in the US by easing various securities regulations. It was passed by congress with bipartisan support, and signed into law by President Obama in April 2012. When most people think of JOBS Act, they think about Title II and Title III. However, Title IV may be the most interesting and exciting part of the legislation. Title IV is also known as Regulation A Plus. Title II and Reg A+ are already in effect, and Title III regarding equity Crowdfunding goes into effect in May 2016.

All of these offer new ways for startups to raise money.

Title II deals with a general solicitation for investors, but only accredited investors can participate in a financing. Validation that the investors are accredited must be confirmed by the startup in order for them to have “Safe Harbor”.

Title III deals with equity Crowdfunding at the $500,000 and $1,000,000 levels. This may be far more costly from a legal standpoint than traditional convertible debt financing or preferred stock offering, so it is not clear yet how widely this may be used. Time will tell.

Equity Crowdfunding is not to be confused with Pre-Sales Crowdfunding on sites likeKickstarter. This new form of equity financing is spawning a new set of “FinTech” companies that will be interesting to watch. See the article in Inc. Magazine, Why Fintech is One of the Most Promising Industries of 2015.

Regulation A+ allows for a general solicitation of a much larger financing (e.g., $20,000,000 or $50,000,000), but it is a private financing round with costs much lower that going public. Legal fees alone in a public offering could be over $1,000,000. In Reg A+ filings to-date, legal costs have ranged from $20,000 to $300,000.

I hope you find this interview informative and helpful. I always recommend getting legal advice from a competent attorney like Jeremy Glaser from Mintz Levin before pursuing a financing for your startup.

This is Patrick Henry, CEO of QuestFusion, with The Real Deal…What Matters

This article originally appeared in The Consulting Masters.