Cash flow – it is the eternal nemesis of many a startup. In a recent attempt to help interject captial into small businesses, Congress passed the Jumpstart Our Business Startups (JOBS) Act into law. Part of the law’s purpose is to loosen investor disclosure laws so as to make funding more accessible for startups. The law makes “crowdfunding”, or an online money-raising strategy via social media, legal.
In essence, the law allows small businesses and entrepreneurs to tap into the “crowd” in search of cash. It does so by shifting the burden of fully understanding the potential risk for an investment to the investor. Perhaps the most obvious example of this shift is the riskiest part of the law itself- Investors will no longer be required to submit to pre-sale disclosure review by the Virginia and Federal securities regulators prior to making an investment.
Crowdfunding isn’t yet available to small businesses. In fact, the regulations themselves for crowdfunding are still being worked out by the SEC. During this interim time, it is important (as the Virginia State Corporation Commission has pointed out (http://scc.virginia.gov/newsrel/s_crowd_12.aspx)) to be very wary of anyone attempting to push crowdfunding prior to the implementation of final regulations by the SEC.
If you are a small business interested in taking advantage of these new opportunities, please contact our office so we may help address your individual circumstancse and see if crowdfunding, once fully available, makes sense for you and your business.