Investment Funding Opportunities Under the JOBS Act: Title II
Mihir Gandhi
If you're an accredited investor or the owner of a small business, Title II of the Jumpstart Our Business Startups (JOBS) Act holds significant benefits for you in terms of investing and advertising for funding. The new regulations under Title II and Rule 506(c) of the Securities Act give investors and businesses the freedom to profit from or raise capital through private offerings involving general solicitation.
Positive Impact of Title II
In 2013, the formal implementation of Title II of the JOBS Act lifted the ban on general solicitation for small companies and startups. To adhere to the changes under Title II, the United States Securities and Exchange Commission (SEC) added Rule 506(c) of Regulation D, which outlines the sale and purchase of private securities between issuers and accredited investors in generally solicited private placements. Previously, businesses and startups weren't able to utilize any public advertising methods when conducting private placements, causing them to miss out on reaching many potential investors. With these new provisions now in full effect, business owners have the freedom to advertise for and obtain the crucial funding they need.
Advertising Publicly for Capital
General solicitation is the practice of using public mediums to solicit and advertise for investment capital. The Securities Act of 1933 placed a ban on general solicitation to combat the possibility of fraud. Before Title II of the JOBS Act and Rule 506(c) lifted the ban, the laws made it exceedingly difficult for business owners in need of investment capital to seek growth capital. Businesses and startups are now free to use any means of public advertising, such as crowdfunding sites, ads, social media, etc., when raising capital through a private placement.
Investor Advantages
While the ban was originally intended to keep investment scams at bay, it also negatively impacted opportunities for purchasers to build their portfolios. Now, because issuers are allowed to publicly solicit for funding while still engaging in private offerings, accredited purchasers have the freedom to invest in more businesses. Just as businesses have the opportunity to raise capital through general solicitation, investors benefit by having the ability to broaden their portfolios, support promising businesses, and earn more substantial profits.