As of this past Monday, May 14th, US regulations have shifted to allow regular people to invest in early-stage companies in exchange for equity. Individuals who are not accredited (those who do not make $200,00K+ per year or have a net worth of less than $1 million) can now invest up to $2,000 a year in startups, and those same businesses can raise up to $1 million from these types of investors.
Prior to these new rules, investing in small businesses in the US was limited to accredited investors, as mentioned above. High net worth individuals were the only people able to participate in the high risk, high reward landscape of early-stage investing. The new rules introduced this week open up the opportunity for regular people to act as Sharks or Dragons (per the US show Shark Tank and the Canadian show Dragons’ Den). Now, the possibility of being a Shark or Dragon is open to the US public for the first time ever.
Upon signing the bill, President Barack Obama was quoted, “For the first time, ordinary Americans will be able to go online and invest in entrepreneurs they believe in.” As stated, this presents an unprecedented opportunity not only for American small businesses, but also for investors. While the risk involved in this type of investment is very high, the upside of investing in an early-stage company is the potential for growth, and of course, the ability to support businesses that consumers believe in.
These types of fund raises are well-suited to companies who have an established customer base and are looking to increase their revenue pipeline and connect with brand champions. Those who are passionate about a business’s product or service are likely to serve as excellent advocates. It benefits the business in the immediate term, and hopefully down the road, it will benefit the investor as well.
With similar rules already in place in Canada, FrontFundr has been closing the funding gap and connecting entrepreneurs and investors since May 2015. A proven concept in Canada, FrontFundr has successfully completed three deals, and currently has six companies raising funds through the online platform. For those deals listed on FrontFundr, we recommend companies raise funds from a combination of accredited investors and their brand champions who believe in the product. The most successfully deals use this blended model to obtain maximum funding and advocate investors.
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