President Barack Obama has signed the JOBS Act into law, making crowdfunding legal for startups by non-accredited investors. Entrepreneurs can now raise money from anybody too. However startups will be limited to $1 million per year and will have to use portals that are approved by the SEC. The legislation has also cancelled the 500-shareholder rule.
The JOBS Act requires all crowdfunding websites to be members of a national securities association in order to protect investors. The principles of the group are to:
– Establish strong protections for investors in the form of an Investor?s Bill of Rights, including tests to assess investors understanding of risk, criminal background checks on issuers, and adequate disclosures by issuers;
– Ensure confidentiality of investors? personal financial information;
– Ensure that investors do not exceed statutory investment limits, by implementing standardized reporting and communication among platforms;
– Establish standard communication processes for transparent flow of information between the issuer, the investor, the intermediary and the regulatory agency;
– Develop a code of conduct for crowdfunding platforms, with enforcement mechanisms to punish bad actors;
– Create a recognizable brand common to trustworthy intermediaries (akin to VeriSign or BBB).
There are over 400 crowdfunding platforms that exist as of January 2012 and most likely there will be additional crowdfunding websites that will launch after the JOBS Act.