On the Ten Year Anniversary of the JOBS Act A Look-Back at the Development of Crowdfunding

May 02, 2022 Published Article

Last month marked the ten-year anniversary of the Jumpstart Our Business Startups (JOBS) Act, which was signed into law by President Obama on April 5, 2012.  On May 16, 2016, Title III of the JOBS Act was enacted, as the final piece of the JOBS Act, which gave businesses better access to crowdfunding tactics due to the ability to raise funds based on equity.  Today, the JOBS Act and the impact of equity crowdfunding more generally has grown among multiple industries, from entertainment and technology to real estate and construction, and has come a long way from the non-equity crowdfunding of Kickstarter and Indiegogo. So what have been the powers that businesses gained from Title III of the JOBS Act? What has been the impact of the last ten years? Where do businesses go from here to better utilize this source of funding?


The main difference and change that the JOBS Act had on the field of "crowdfunding" was that for the first time, unaccredited investors could obtain equity stakes in businesses through online solicitations.  However, a business was still required to go through the proper approved channels, like accredited crowdfunding portals to solicit and receive funding.  Prior to this, crowdfunding had gotten more of an impact and reputation from platforms like Kickstarter and Indiegogo, platforms that benefitted creative works or could act as a "pre-order" system with no guaranty of performance or quality of goods by the party seeking funds.

The JOBS Act changed this by permitting equity crowdfunding, essentially having securities sold online by startups.  The JOBS Act accomplished this through permitting crowdfunding from unaccredited investors under Title III, and Title IV.  Title III and Title IV differ slightly, with Title III having more restrictions than Title IV, as Title IV fundraising requires registration, while Title III does not. For instance, Title III, permits companies to raise far less money than under Title IV, and Title III also imposes a one year-restriction on trading, unlike Title IV's complete lack of restriction regarding timing.

Further, both Title III and Title IV have changed since their enactment.  Title III increased its limit of one million dollars per twelve month period, to five million in a twelve month period in 2020.  That same year, Title IV also increased its limit of fifty million per twelve month period to seventy-five million per twelve month period.  Further, businesses can now "test the waters" to solicit interest in a potential offering prior to filing the appropriate forms with the SEC.


One of the biggest impacts in the advent of crowdfunding has been through Initial Coin Offerings, or ICOs.  However, it is worth acknowledging that the boom of ICOs from 2016 to the present was not solely due to the JOBS Act, but rather was a result of the law failing to catch up with the technology, with the SEC warning companies that ICOs would likely be considered securities in most cases. Notwithstanding this, some companies, such as Blockstack and YouNow Inc., have utilized the JOBS Act to help launch their ICOs and gain funding.

Further, while ICOs may be the initial thought, this is not the only venture for crowdfunding, as it has extended into real estate loans, as well as construction loans through platforms such as Patch Lending.  With the increases in possibilities, businesses that may not have a ready to sell product or the ability to crowdfund by promising a finished good can still reach average people ready to invest in a something where they find value.


While it's unknown if the SEC may continue expanding the potential of crowdfunding to create solid alternatives to existing funding options, crowdfunding can be used to supplement and grow existing funding plans.  Currently, the best option for crowdfunding depends on the business plan for an entity, as some businesses may be able to thrive on crowdfunding alone, while others may require funding beyond the existing caps, thereby allowing crowdfunding can act as a supplement to funding.


Newmeyer Dillion can provide help provide guidance on following the requirements of crowdfunding under the JOBS Act, the requisite disclosures, ICOs and cryptocurrency.  Please contact us at 949-854-7000 to learn more.