Advertisement
business

JOBS Act Makes It Easier to Invest in Start-ups

But think twice before signing on to be a venture capitalist.

Ordinary investors will soon get the chance to invest like venture capitalists, thanks to a new law intended to boost start-up companies.

QUIZ: Test Your Start-up Know-how

But some experts say the law will help small businesses at the expense of investors. The Jumpstart Our Business Startups Act allows fledgling companies to raise up to $1 million per year by trolling the Internet for investors willing to take a flier on stock (or debt) in the business in advance of a conventional initial public offering. So-called crowd funding opens up a badly needed source of capital for start-ups. But, says Georgetown University professor James Angel, "crowd funding could easily turn into crowd fleecing" if investors can't sort legitimate opportunities from bad deals and outright scams.

Advertisement - Article continues below

Here's how the process will work: Companies will issue securities on online funding portals registered with the Securities and Exchange Commission, or through brokers. Investors will get information about the risks of the investment, the financial health of the company and how it expects to use the money raised. But you won't find a traditional prospectus -- or the level of disclosure traditionally found in one. It's up to the SEC to finalize the rules, due by the start of 2013.

Advertisement
Advertisement - Article continues below

Investors shouldn't jump at the chance to buy in. Only 45% of start-ups last five years, according to the Kauffman Foundation, which tracks entrepreneurship. The JOBS Act recognizes the risk by limiting the losses investors can suffer. Those with an annual income or net worth (likely excluding the value of a home) of less than $100,000 will only be able to invest the greater of $2,000 or 5% of their assets. Those above the $100,000 limit have more to lose -- their investment is capped at 10% of their income or net worth, up to $100,000. With a few exceptions, investors must hold the shares for 12 months. Expect secondary markets to crop up to trade shares.

Advertisement

Most Popular

2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Searching for the Perfect Place to Retire
Empty Nesters

Searching for the Perfect Place to Retire

We home in on two places with less traffic and lower costs. 
July 2, 2020

Recommended

3 Municipal Bond Funds for Rich, Tax-Friendly Yields
Investing for Income

3 Municipal Bond Funds for Rich, Tax-Friendly Yields

Municipal bond funds allow you to enjoy the benefits of tax-exempt income. By investing CEFs, you can sweeten the pot even further.
July 2, 2020
Is the Stock Market Closed for the Fourth of July?
Markets

Is the Stock Market Closed for the Fourth of July?

Independence Day falls on a Saturday in 2020. As a result, the bond and stock markets are closed for a long holiday weekend. Here's a look at the mark…
July 2, 2020
2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
13 Best Vanguard Funds for the Next Bull Market
mutual funds

13 Best Vanguard Funds for the Next Bull Market

Optimistic that the bounce since March is indeed the start of the next bull market? Here are the 13 best Vanguard funds to help you make the most of i…
June 25, 2020