The JOBS Act - Could It Create a Two-Tiered System of Investors?
The Jumpstart Our Business Startups (JOBS) Act, passed into law in April of this year, has the potential to help startups and small businesses raise capital through numerous, small investments from "the crowd." This widely discussed crowdfunding exemption is found in Title III of the Act. But the Act also created the possibility that the biggest benefit from the legislation will go not to the crowd, but rather to traditional investors that have long had access to the best startup and small business investment opportunities.
If a startup or business is able to utilize a Rule 506 general solicitation, it will be able to raise more money, from fewer people, and with less litigation and regulatory risk. Thus, it is likely that many of the best high-growth ventures will pass over the requirements of the crowdfunding exemption in Title III, and instead crowd-fund from an upper tier of accredited investors.
Ultimately, if the SEC is not careful, the net effect of the JOBS Act may be to further empower more affluent investors, while leaving the crowd behind.
SOURCE: Yahoo Finance