One of the landmark pieces of legislation to pass Congress in the past few years was the Jumpstart Our Business Startup Act, also known as the JOBS Act. The Act carries many beneficial provisions for small businesses and investors, but the most significant one was in Title II, Sec. 201 of the legislation. Previously, under Regulation D of the Securities Act of 1933, businesses that were seeking to raise capital – such as startups – were not permitted to generally solicit or advertise to the public that they were in search of capital. That meant that potential investors seeking to invest in innovative companies might only find out about these investments through limited channels. They’d probably have to be invested in a private equity fund, hedge fund, or have money with a wealth manager.
The JOBS Act changed that rule. Now, general solicitation and advertising is permitted. Startups that were frustrated by the fact that they had a great idea, but no way to tell the public about it in order to raise capital, now are legally permitted to shout their opportunity from the rooftops.
Those rooftops, however, haven’t really been built yet. Only a few portals exist in which startups and investors can be brought together and engage in capital discussions. Thus far, I’ve only found one website that has truly created an innovative platform that takes advantage of this legislation. Head on over to www.720Investor.com
Companies that are trying to raise money – and this can be any kind of business, not just startups – can create a Showcase Offering. They provide all the information an investor will need to gauge interest such as business plans, financials, and other supporting material. All the materials a company might put together in a private placement memorandum, or to go on a road show for a capital raise can be posted at www.720Investor.com. Sub-documents such as ownership agreements, and PowerPoints are also available. 720investor will also interview you for the Showcase so you can “get your message out” to potential investors.
Investors that are interested in these kinds of opportunities can register for free at the website. They can choose to receive emails when new opportunities arise in the sectors they might be interested in, including hedge funds, restaurants, oil & gas, real estate, movies, technology, and twenty other categories of private equity investments.
In the past, a company seeking capital would likely approach a private equity firm and submit their request. Most private equity funds get hit with 5 – 10 pitches every week, and fund two or three per year. So even though a lot of capital is sitting on the sidelines looking for a home, the distribution pipeline for information on investments was narrow. Now, companies can blast their information to the world, and this should increase the capital flow into the private markets. Private equity funds can also post their own offerings, or offerings of companies in their portfolio, at www.720Investor.com as well. That’s going to be good news for the overall economy.
For investors who have grown concerned about how the Fed’s quantitative easing program has created an overextended stock market while simultaneously devastating bond yields, they can now deploy capital into private investments they had previously never heard of. These investments will likely offer a broad range of risk-reward securities, from senior debt to high-risk/high-reward equity positions. It’s a great way for investors to diversify their portfolios away from the stock market.
Mind you, one aspect of the securities laws have not changed. To participate in any of these offerings, you must be an Accredited Investor. This usually means you earn $200,000 per year or more, or have a net worth of at least $1 million. In addition, whereas offering companies merely needed an investor to sign a statement warranting that they were Accredited, the law now puts the onus on the offering company to obtain proof that an investor meets the Accredited Investor criteria.
This is landmark legislation for America. With banks tightening credit, companies of all stripes need new sources of capital. Investors seeking to diversify their own portfolios can now deploy their capital into these businesses. I think the JOBS Act and websites like 720Investor.com are going to bring American businesses a lot of new capital in the coming years.
720 Investor is the brainchild of Ed Butowsky and Joseph Harberg. Ed serves as Managing Partner of Chapwood Capital Investment Management, where he focuses on business development and providing clients with comprehensive array of investment management services. He served as President and Chief Executive Officer of Chapwood CustomHedge Portfolio Advisory Services, LLC. He appears frequently on Fox News’ “Fox & Friends” and on CNBC. Joseph is a founder and managing President of Retail & Restaurant Growth Capital, an investment fund focused on growing retail and restaurant ventures. RRGC/Harberg have participated in transactions totaling over $1B of invested capital into early stage retail and restaurant companies since 1995. Some of Joe's early finds and investments include Restoration Hardware, Quizno's, Elizabeth Arden Red Door Salons, Cafe Express, the Walking Company and Uncle Julio's.