Recently, the bipartisan Jumpstart Our Business Startups (JOBS) Act became law, transforming how entrepreneurs can raise the money to grow their business. The JOBS Act expands the pool of potential investors, makes investing in small businesses more attractive and lowers the regulatory burden for more mature business of “going public.” Savvy entrepreneurs should be aware of what the new legislation entails when forming a comprehensive strategy for raising capital and growth.
“The JOBS Act is a game changer for entrepreneurs and ‘Main Street’ businesses,” explains Rob Kaplan, a partner at the law firm Kaplan Voekler Cunningham & Frank (KVCF). “Those who are unaware or don’t fully understand the implications may miss out on opportunities that are now becoming available.”
Here, briefly, is a list of five elements every entrepreneur needs to know about the JOBS Act:
The JOBS Act creates new “strata” of public securities:
1. Under Regulation A, which exempts securities that qualify from registration, but they may still be sold publicly and traded, entrepreneurs will now be able raise $50 million every 12 months. The old rules capped the amount to be raised at $5 million. This creates a new ability for entrepreneurs to raise capital efficiently and will also stimulate the likely creation of new securities markets beyond Wall Street.
2. The “IPO Onramp” provisions of the Act simplify the transition for private business to go public by relaxing reporting and compliance requirements for five years for companies under $1 billion in revenues that go public.
The JOBS Act creates new opportunities for early-stage funding:
3. Entrepreneurs can now raise $1 million by crowd funding — the process of raising small amounts of capital from a large number of investors — within a 12-month period. While these new regulations offer increased opportunities, they do not eliminate angel investing as a viable and even preferred option for entrepreneurs.
4. General solicitation will be permitted in the context of certain “private” securities transactions; however, the securities must only be sold to “accredited investors” and may not be freely traded posy-investment.
5. Working with an attorney or law firm focusing on capital formation and compliance remains the best way to ensure that an entrepreneur gets the most out of any funding opportunities.
“As is the case with any new financial regulation, there is much to learn and plenty of landmines to navigate,” says Tom Voekler, a partner at KVCF that focusing in real estate based securities. “We help our clients understand both the opportunities and the potential pitfalls and we apply that knowledge and experience every day. This allows our clients to focus on what they do best – running their businesses.”
Kaplan, Voekler, Cunningham & Frank (KVCF) is a multi-city law firm that focuses on capital formation and compliance for emerging businesses. The firm was founded in 2005, and covers the practice areas of bankruptcy and creditors rights, capital markets, development and real estate, general business representation, and litigation. For more information on KVCF, visit the website at www.kv-legal.com.