Tucker Max On Why The JOBS Act Is A BIG Deal

Part two in a six part series from Tucker Max about how crowdfunding is going to change everything, especially when it comes to startups

(I don’t think Tucker Max needs an introduction. But what you might not know is that, beyond being a legitimate, multi-time best-selling author, he also advises and invests in startups. So with his permission, we’re re-posting a series he did on crowdfunding and how he feels its going to change everything. You can catch the series at its original home on TuckerMax.me.)

I’ve become a very active investor and advisor to start-ups over the past two years, and I firmly believe one piece of legislation is going to fundamentally change business, investing, and entrepreneurship. In fact, I think it might actually unleash a torrent of changes that impacts the whole world in a very positive way. This piece is part 2 of a 5 part series about Crowdfunding, the JOBS Act, and what all of this means to you. Part 1 is here.

What Is The JOBS Act?

In short, the JOBS Act is legislation passed by Congress that allows companies to publicly state that they are raising money, and then take that money from anyone in exchange for equity. As of this moment, it is currently only legal for a company to privately solicit investments from what are called “accredited investors,” which are defined as people who make more than 200k a year, or have more than 1 million in assets. Basically, only rich people are currently allowed in invest in start-ups, and the JOBS Act gives everyone that chance. This is the legislation that made equity crowdfunding legal.

I Don’t Get It, Isn’t This Just Like Kickstarter or IndieGogo?

No. On those platforms, you are giving a company or person money, and they are promising to either give you a product (like a watch), or do something (like make a movie). It is not a legally binding agreement, and you have no legal recourse against them if they just take the money and run.

Equity crowdfunding is completely different. You are giving a company money, and they are giving you ownership (equity) in return. These deals are run through licensed broker/dealers, and the company now has fiduciary responsibilities to you as an investor, and you have a legal claim on them. Think of it as similar to buying stock (it’s NOT the same thing, but close enough for this explanation).

For example, if you backed the Pebble watch or “Veronica Mars” movie on Kickstarter, at best you get whatever prize they promised you (and if they don’t deliver, all you can do it write a harshly worded review on your Tumblr and thats it). You don’t get to share in the profits either endeavor makes.

But if you invest in a start-up like Hinge on a platform like Angellist, and they end up blowing up and becoming the next big thing, you get to profit right along with them. Not only that, but they can’t just not give you your money if they get bought or start paying dividends of whatever. The full force of American financial regulations are behind you.

There are three basic types of crowd funding platforms; rewards (like Kickstarter), equity (like Angellist) and lending (like Kiva), and they are very different. In Part 5 I’ll cover all the different type of platforms, but understand that allowing people to buy equity in an early stage company this is a major and fundamental shift in the way that capital is allocated in the world financial system. This is a BIG DEAL (and I explain why in parts 3 & 4).

So The JOBS Act Gives Me The Chance To Get In Early On The Next Facebook or Instagram?

Yes. For the past 80 years, the only people who had the chance to invest in start-ups and early stage companies were the wealthy or the well-connected. The JOBS Act makes it possible for anyone to get the same access to early stage investing.

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