Title III (crowdfunding) is the most novel provision of the JOBS Act in that it creates an entirely new exemption from registration of securities offerings structured to take advantage of the Internet’s capacity for mass communication and social interaction. Nonetheless, it remains to be seen whether crowdfunding will ultimately be a widely used exemption or spur the kind of startup economic activity Congress and the president intended.
The concept of crowdfunding is based on large numbers of investors each investing relatively small amounts in an issuer, to give early stage companies access to capital while minimizing the risk to individual investors. It also extends the tacit promise of making entrepreneurial investing, of the type previously the exclusive realm of venture capital funds and wealthy individuals, available to the vast majority of potential investors who do not qualify as accredited investors. The SEC recently adopted the final rule on crowdfunding.