For those of you who haven’t been following the JOBS Act, it is a bill that will make it easier for startups and small businesses to raise funds, especially through online crowdfunding, is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.
The JOBS act was designed to help small businesses by:
1. Removing general solicitation and advertising restrictions for certain private offerings
- Rule 506 – If all purchasers are accredited investors
- Rule 144A – If issuer reasonably believed all purchasers are qualified institutional buyers
2. Creating a new $1M crowdfunding exemption, allowing non-accredited investors to participate in the funding rounds
- Up to $1M of securities in a 12-month period
- Investor’s net worth <$100k they can purchase greater of $2k or 5% of annual income or net worth
- Investor’s net worth $100k+ they can purchase 10% of annual income or net worth up to $100k
The SEC will have a 270 days to implement additional regulations from signing of the bill.
If you are a real estate investor who may be looking to raise private capital through this vehicle you may want to start planning in the meantime.
Planning is the foundation to your success, Execution is the material that creates the business. Execution without planning is like wanting to drive to Fargo without a map. You may end up getting there but a little planning could have saved you a lot of time.
- Check out my previous blog post where I lay out business planning and goal setting:
- Get all the documents in place. Including your business plan, incorporation documents , financial analysis & forecasts and a full executive team bio.
- Do market research. Get all the facts in place in order to have a strong argument as to why people should fund your project.
- Start putting together a list of contacts and potential investors.
- The concept of crowd funding involves work from the user seeking funds as they need to leverage their networks and ask their networks to lend a hand. We found that the initial 30-40% of activity actually comes from the users’ network.
- Make a video
- Start to craft your pitch in the best possible way. If someone asks what you do can you explain it in 30 seconds or less? Do you know what your most common questions are and the answers to those questions?
- Start building your social network presence. Remember crowd sourcing is based on smaller amounts of money from multiple people. Start building your network and credibility
Time will tell exactly how much impact the JOBS Act will have on the job market and raising money for Real Estate
Some reasons it may not make sense:
IF the SEC:
- Makes it to costly to set up
- Makes it to complicated to create
- Has to be sold through securities brokers
- It may be to cumbersome to have a lot of little investors on deals.
- More red tape and reporting requirements
I am not sure yet whether this is a good thing or not. It really depends on the SEC final terms which I will report on when the grace period is over.
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