One of the most exciting provisions of the 2012 Jumpstart our Business Startups Act was the approval of equity crowdfunding, i.e., allowing unaccredited, average-Joe investors to buy equity stakes in startup companies. The Securities and Exchange Commission (SEC) recently finalized its rules governing the provision, which some see as overly strict. As reported by the Wall Street Journal:
These rules stipulate that any company that takes on more than 500 individual investors or grows to a size greater than $25 million in assets must start filing regular disclosures just like a publicly traded company. It is all the pain of an IPO without the benefits of the IPO.
The SEC also limited the amount one can invest. Those with less than $100,000 in annual income or net worth can invest at most 5 percent of their income or $2,000, whichever is smaller.
May 16 is the first day equity crowdfunding goes into effect.
For more information on private equity trends, this infographic from Pitchbook visualizes 2015 data on capital raised, fund exits, and more.