As of September 23, 2013, American businesses can advertise that they are raising money, and it won’t be considered a crime.
The Securities and Exchange Commission is lifting an 80-year-ban on the practice, freeing up privately-owned businesses across the country to openly seek investment funding. Previously, businesses seeking to raise capital were required to either pitch their plans exclusively to so-called accredited investors—individuals with at least $1 million in net worth (excluding their primary residence) or $200,000 in annual income—or offer a regulated security (such as stocks or corporate bonds). Regulated securities are off the table for small businesses and start-ups, and the chance to pitch to a pre-screened room full of accredited investors is only for management teams that are part of high-power business networks. Under the new legislation, businesses can skip the pre-screening process: A business can advertise that it’s raising capital whenever and however it wants—on a website, in a newspaper, on a billboard, on a hat—and wait to be contacted by accredited investors interested in the opportunity.
The change is a part of the 2012 Jumpstart Our Business Start-ups Act (or JOBS Act), which was passed by Congress largely in response to the tight credit market that has persisted in the United States since the 2008 recession. The hope is that small businesses and startups that don’t have access to bank financing or investment networks will be able to cast a wider net in their search for cash, and have a greater chance at securing the funding they need.
Currently only “emerging growth companies” (companies with annual gross revenues of less than $1 billion) can benefit from the ban lift, and those companies can only accept up to $1 million in investment funding annually, and only from accredited investors. However, another revision to the law lessening the restrictions defining “accredited investor” is expected to pass Congress soon.
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