For years, the SEC rules have blocked small businesses wanting to gain greater access to capital through equity raises. However, on May 16, the new Title III rules will launch allowing business owners to finally access a greater pool of non-accredited investors for the first time in 80 years, giving them more access to capital.
Adding to this momentum is the fact that one of the first portal approvals for Title III is currently underway and set to be finalized in just a few days, allowing Title III offerings to officially be live and available by May 16th.
Ron Miller is the CEO of StartEngine, whose platform has received one of the first Title III approvals. His platform has been selected as one of the finalists to participate in the Washington, DC Crowdfunding Demo Day celebrating the launch of Title III on Capitol Hill. Ron’s platform has over 50,000 registered users with one company raising more than $16,940,676 on his site. Home Business Magazine discussed with Ron how the new rules will allow small businesses to succeed.
HBM: What do the new rules mean for entrepreneurs?
Miller: “The new rules allow all investors (both non-accredited and accredited) to invest in startup and growth companies for the first time in 80 years. For small businesses, this means that they will be able to access more capital as they can now tap into a wider pool of investors. Before the new rules, SEC regulators only permitted accredited investors – those who had a $1 million or more in assets – to engage in equity funding opportunities. But now under the new Title III rules, non-accredited investors – the rest of the general population from middle class families, to hard working dads, to minorities – will finally be able to invest in equity-based deals. In addition, entrepreneurs can now promote/advertise their companies to prospective investors (subject to SEC limitations).
Title III is the greatest advancement for entrepreneurship in this new digital era. The single most powerful barrier to bringing great innovations and companies to life is the ability to raise capital. Under the new rules, entrepreneurs will now have the opportunity to engage their customers, fans, and numerous investors across the nation to fund their businesses and become brand ambassadors.”
HBM: What is the biggest thing businesses need to be cautious about with Title III capital raising?
Miller: “The biggest thing that businesses need to be cautious about under Title III is honoring compliance. While regulation crowdfunding affords tremendous opportunity to entrepreneurs, with that opportunity comes responsibility. Specifically, the procedural and substantive requirements must be followed. Otherwise the entrepreneurs risk disgorgement, penalties and even possible jail time.”
HBM: What do investors need to be cautious about with Title III?
Miller: “Investors looking to invest under Title III rules always need to remember the importance of diversification. For investors, there are few challenges, other than to remember the importance of diversification. Investors should only invest a small percentage of their overall wealth in these high risk, high return opportunities. Second, within this sector they should diversify among as many different companies, as possible.”
HBM: What will be the initial challenges for both entrepreneurs and investors?
Miller: “Early challenges for entrepreneurs will be that it will require a true pioneer to be the first to step out and take advantage of these new rules. That means, that the individual entrepreneurs who are early adopters will have to figure out the successful and unsuccessful tactics to employ when raising capital from a crowd.
For investors, there are very few challenges. However, just like with any investment opportunity, it’s important for investors to review all of the risks and potential rewards with each company they are considering and to educate themselves so they make wise investment decisions. In addition, since non accredited investors can now do equity deals, there may be a large influx of new investors. So it’s important to engage in investor education and study deals before putting money on the table. Finally, as shared earlier, it’s important for investors to always diversify. Investors should only invest a small percentage of their overall wealth in these high risk, high return opportunities.”
HBM: What companies are most likely to succeed under the new Title III fundraising rules?
Miller: “Since Title III crowdfunding leverages social media and close networks, initially, it’s likely that companies with a substantial fan base or customer base will be among the first to be able to successfully raise capital under the new rules. Additionally, companies that have extraordinary products that represent major advances in broad industries will likewise be successful. Then in the future, it’s likely that startup and growth companies, that offer potential for significant returns will be able to take advantage of this developed market.
I think we are likely to see somewhere between 6 and 10 platforms launch on May 16. By year-end, I think we’re likely to see another 12-20 additional platforms.” HBM
About Ronald D. Miller
Ronald D. Miller is an entrepreneur’s entrepreneur having visualized, founded built and sold five companies through management buyouts, private equity firms, private investors and public markets.
Ron’s success has been publicly recognized as a four time Inc. 500/5000 Award recipient and as an Ernst & Young Entrepreneur of The Year Award Finalist. Over the past 25 years, Ron has accumulated a wealth of experience in building, leading and empowering executives and teams to deliver extraordinary results. His rich mix of marketing, sales, IT, operations and financial experience has enabled him to see things others do not. He has an extensive track record of visualizing the strategic picture, defining opportunities and producing measurable results through disciplined and documented systems.
Ron received his BA in Business Administration with distinction from Michigan State University – Broad College of Business and proceeded to earn his Juris Doctorate from the University of Detroit School of Law.
Currently, Ron is a partner in StartEngine, an equity crowdfunding platform and LA’s largest tech accelerator. At StartEngine he helps entrepreneurs realize their dreams.
The post May 16 Marks New Era in Fundraising for Small Businesses appeared first on Home Business Magazine.