It wasn't long ago that private businesses, especially small businesses, had limited options when it came to raising capital. Hit up family and friends, or bootstrap and use personal credit. It's no secret that the banking sector hasn't been particularly friendly to small business when it comes to supporting the industry with access to loans. And on the other end of the scale, relatively few small businesses have leveraged the critical mass needed to go public and launch an IPO.
Since the Jumpstart Our Business Startups or JOBS Act was signed into law in April 2012 much has changed for small business job creators, and for the better.
Enter Title II of the JOBS Act
When Title II of the JOBS Act was introduced, it was also known as the Access to Capital for Job Creators Act. Both the spirit and intent have been clear. Eliminating the prohibition against general solicitation in order to embrace the new realities of the digital age where information is more readily shared was a key development in the capital markets. Smaller companies that didn't have a broad network of investors found it difficult to raise capital under the old rules, but Title II of the JOBS Act allowed them to raise capital via general solicitation under a newly created Rule 506(c) securities offering exemption.
Reliance on Rule 506(c)
According to an October 2015 Securities and Exchange Commission report, $33 billion in capital was raised under Rule 506(c) since it became effective in September of 2013. That might sound like a lot, until the qualifier: that's just 2 percent of all capital raised under Regulation D. However, that proportion is expected to grow.
Funding Platforms and Rule 506(c)
An increasing number of online funding platforms representing nearly every asset class have come to support general solicitation offerings that are relying on Rule 506(c). Small business entrepreneurs, whether or not they are actually “startups”, are publicizing their offerings to reach more potential investors in a more efficient way.
As private market activity continues its online migration, entrepreneurs and investors alike benefit from the transparency and efficiency. And as the cost of raising capital drops in direct proportion to funds raised, those entrepreneurs will inject more job creation activity into the economy.
Private Sector Job Creation
As far as job creation goes, the private sector in the United States is nothing to scoff at. And small business plays a significant role. The U.S. Small Business Administration reported that in 2014, small businesses created 2 million of the 3 million jobs created by the private sector as a whole. That's two out of three. At VerifyInvestor.com, we think small businesses should have access to the capital they need. If good companies can find investors more easily, then they'll create jobs faster. After all, Title II of the JOBS ACT intended to provide job creators with access to capital.
Title II or Rule 506(c) securities offerings require verification of accredited investor status using federally prescribed "reasonable steps". VerifyInvestor.com is a secure, confidential and fast way to verify accredited investor status. Contact us today to learn more.