On April 5, 2012, President Barak Obama signed the Jumpstart our Business Startups (JOBS) Act into law. It eased security regulations in order to increase funding to American small businesses, while opening up participation to everyday citizens. Title III of the JOBS Act created new regulations for equity crowdfunding, which opened up investment to non-accredited investors or “the crowd”.
Regrettably, the equity crowdfunding portion of the bill fell short. Too many regulatory hurdles quashed the appeal to high-growth startups and to qualified investors. Before issuing Title III regulations, the SEC estimated 1,900 businesses would seek funding through this method. At the time, this accounted for less than 2% of the total annual funded deals.
As the SEC took public commentary, which then informed their regulations, we took the leap of faith and began building a product which conformed to the most stringent guidelines imagined. Unfortunately, the low funding potential, and the demanding rules (which took over two years to arrive) created a situation where few were willing to subject themselves to such a burden.