Monday May 16, 2016 – the long awaited Title III of the JOBS Act has finally gone into effect, allowing non-accredited individuals to invest in private startups and small businesses via a crowdfunding platform.
To provide a little background, the JOBS Act (Jumpstart Our Business Startups Act) was initially signed into law on April 5, 2012, in an effort to ease up on security regulations so that small businesses may see an increase in funding through the participation of “everyday citizens.” Before Title III, only accredited investors who earn more than $200k per year or have a net worth of over $1 million could participate in these types of investments. These opportunities were only offered privately to accredited investors.
Now, investors who make over $100k per year can invest $2,000 (or 5% of their annual income; whichever is greater). Investors who make less than $100k per year can invest up to 10% of their annual income (SEC Guidelines
). On the entrepreneurial side, startups can raise up to $1 million in a 12 month period.
Although this new change may seem exciting for “everyday Joe” investors, there are quite a few stipulations to Title III that will more than likely abate any immediate market changes. For instance, there is a limit on the fundraising amount for startups. According to Forbes, many startups require more than $1 million for their “seed round” of investment. Since the JOBS Act was created in 2012, the fundraising cap doesn’t seem to take into account the growing cost of technical talent and hiring costs.
Another barrier entrepreneurs may face with the inaction Title III is the cost associated with fundraising via Title III. On average these costs could range between $50-100k. On top of that, the new SEC regulations require businesses that want to create an equity crowdfunding campaign to comply with extensive regulations which are far stricter than the Regulation D offerings (Forbes
Regardless of the caveats, the idea behind the passing of Title III is to give investors more power and the opportunity to invest their funds in an asset outside of the stock market. Self-directed IRAs are a way for investors to reach the same end, with even more flexibility and control. Whether a tax payer wants to open a tax-free or tax-advantaged account, self-directed IRAs can be invested in any asset allowed by the IRS. This includes real estate, precious metals, private equity, private lending, and more.
Entrepreneurs and investors can greatly benefit from the tax-advantaged freedoms offered by self-directed IRA investing (read more here.
) An investor can use his or her own personal knowledge and market expertise to scope out opportunities, or team up with another investor who has insight about a promising asset in a market that may be unfamiliar to the first investor. An IRA owner can even bankroll an investment that a different entrepreneur doesn’t have the funds to personally finance.
Contact New Direction IRA today to learn more about how self-directed IRA investing can help you realize your investment goals, with a level of power and control not readily available by many other strategies.