Crowdfunding Under the JOBS Act: The Bottom Line Impact on Private Equity Issuers and Market Intermediaries
On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”), H.R. 3606, into law calling it “a potential game-changer” for startup companies. President Obama signed the JOBS Act just over a week after it was passed by Congress with strong bipartisan support. The stated purpose of the JOBS Act is to “increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies.” The JOBS Act contains several provisions that open new doors for both public and private emerging companies. However, Title III of the Jobs Act, named the “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012,” or the CROWDFUND Act, has by far generated the most discussion and debate in the context of the private equity marketplace. The CROWDFUND Act has been added as new Section 4(6) of the Securities Act of 1933, as amended (the “Securities Act”). The concept of “crowdfunding” – or raising money privately from a large pool of individuals – is not a new one. For example, a charitable organization soliciting donations from the public at large, oftentimes in small dollar increments, falls within the guise of crowdfunding. Additionally, private companies previously have been permitted to engage in crowdfunding activities pursuant to existing exemptions under federal securities laws, e.g., Regulation D promulgated under the Securities Act, as long as all other conditions of such exemptions are met. Title III of the new JOBS Act codifies “crowdfunding” as a separate exemption for private securities offerings and provides parameters for issuers and market intermediaries that obviate the need to comply with other conditions of exemptions such as Regulation D.