As a quick history lesson, before the JOBS ACT was passed in 2012, the Securities and Exchange Commission limited private company investments to accredited investors – folks with an individual or joint net worth with a spouse that exceeds $1 million (not counting the primary residence). But soon nonaccredited investors will be able to back private companies via crowdfunding – the raising of capital in small amounts from multiple backers. Lawmakers are currently hashing out the rules.
Previously, nonaccredited investors were prohibited from investing in private companies because the SEC seemingly assumed that such individuals could easily end up losing their life savings. The counter argument was that startup investing wasn’t any riskier than investing in penny stocks or gambling at casinos. What’s more, with proper controls and the convenience of Web-enabled tools, crowdfunding could help stimulate the economy by making it easier for startups to succeed.
Read the rest of this post in the Wall Street Journal, which I guest authored this week.
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