Startups can raise up to $50m
WASHINGTON: Small investors looking for a slice of young companies can for the first time begin buying stock at a start-up’s earliest stages under a new provision of JOBS Act that took effect on Friday.
The latest element of the 2012 law, designed to expand small businesses’ access to capital, sets the stage for so-called ‘mini-IPOs’. Firms seeking up to $50 million can test the waters, gauge interest among a wider range of investors, and ultimately file for an initial public offering with relatively fewer hurdles.
For entrepreneurs, it’s an alternative to hunting down venture capital, relying on crowdfunding or holding a full-fledged IPO. For consumers, it opens early-stage stock purchases to more than just wealthy accredited investors: those whose net worth is more than $1 million or who made more than $200,000 in each of the previous two years.
The process is still lengthy. Firms must disclose two years of audited financials — or for younger companies, as many as they have — and management has to undergo bad-actor checks. For smallest IPOs of less than $20 million, sign-offs are required from every state in which a deal is marketed.
The process could cost up to $100,000, a sizeable amount for a fledgling company.