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Happy Second Anniversary JOBS Act

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This article is more than 9 years old.

Two years ago on April 5, 2012, President Obama signed the JOBS Act (Jumpstart Our Business Startups Act) into law to encourage funding of small businesses by reducing securities regulations. Just days later we launched CircleUp , one of the largest equity consumer products crowdfunding platforms. To date, we have helped over 30 companies raise more than $30 million. In this post, I will look back at several milestones from the past two years and look forward to the future of the JOBS Act.

Parts of the JOBS Act became effective immediately when JOBS was enacted. The SEC delayed other parts of the JOBS Act implementation in order to create rules to protect both companies and investors. Nearly 1.5 years later on September 23, 2013, Title II went into effect. This enabled some small businesses and private startups to market their capital raising efforts through social sites such as Facebook and Twitter and to accept investments online via equity crowdfunding sites that democratize investing. Importantly, with Title II, only accredited investors can invest in generally solicited companies.

With Title II, early stage startups can now fundraise more efficiently. For example, with our equity crowdfunding platform, companies raise the money they need in an average of 60 days—a process that otherwise takes 8 to 12 months. Even within our site, raising has accelerated—from 134 days for the first million to go through the platform to just 7 days for a recent million. Companies can also include their passionate supporters now—not just private, well-established networks of Angel Investors (who before had unfair priority access to the best deal flow). For example, one company, Rhythm Kale Chips, closed their round (nearly $800K) in two weeks—bringing together strategic investors from across the country.

Equity crowdfunding removes geographical hurdles and adds transparency.  Online platforms also help educate both companies and investors and standardize the process of online solicitation. Our platform provides company forums, private messaging between companies and potential investors, social connection data, background check information, and more. On a platform with multiple deals (likely into the thousands in the future), potential investors can more easily compare and evaluate deals and achieve diversification through multiple investments—often with much lower minimum investments than one would find offline. These lower costs encourage more investors to participate in the market.

In just two years since the JOBS Act became law, $393 million has been raised through equity crowdfunding and investment dollars are growing. This quarter, $90 million was invested and experts estimate that equity crowdfunding could grow 100% this year to $400 million raised. The amount invested through our platform increased 5X in 2013 and continues to grow.

These investments are helping fuel startups—in our case consumer and retail companies. Within this space of understandable, everyday products, we’ve helped crowdfund everything from outdoor apparel to children’s snacks to boutique eyewear and from companies based in Texas to Idaho. The companies have performed very well after a successful raise at an average revenue growth rate of 80% year-over-year. Rhythm Kale Chips from our earlier example has grown over 100% each of the past two years. These companies have also achieved an average gross margin increase in the year after investment from 34% to 39%. These metrics could signal future gains for investors but we caution that these are high-risk, illiquid investments.

Title III would provide a means for non-accredited investors to begin investing in these companies. It is in process but not likely to be implemented anytime soon. The restrictions proposed by the SEC, including additional costs for compliance and heightened liability, would probably not appeal to the best startups that are better served raising capital from accredited investors.

With Title II and platforms like ours, there are more and more ways for investors to support early stage companies and entrepreneurship. These investors can feel good about helping rebuild the American economy by investing in scalable consumer businesses to drive growth and create new jobs. This is only year two with the JOBS Act—we believe that the best is yet to come as more investors discover equity crowdfunding and companies continue to take advantage of more efficient fundraising possibilities.