First the good news: Starting Sept 30, US federal law allows small startup companies to raise equity on the Internet, without the expensive barrier to register the shares for public trading with the Securities and Exchange Commission (SEC). Companies can now raise unlimited amounts of capital simply by using social media sites or elsewhere on the Internet.
This will help address the problem many small business owners face by creating a mechanism to connect with investors, which until had to be done “privately” — which for many small companies meant not at all.
Here’s the catch: it only applies to “accredited investors,” those with a personal net worth of more than $1 million or those whose annual income is greater than $200,000.
So the idea that the general public would get a chance to invest their own money in small companies they believe are poised for rapid growth, is still on hold. That is expected to happen, sometime in the next year or two; the SEC is struggling to find a way to make this work without encouraging a huge wave of fraudulent offers that rip off people.
That said, for some small companies with great market potential but limited access to growth capital, this just might be the ticket.
Here’s a recent article in the New York Times on this topic.
What do you think?