What the JOBS Act Means for You
Investors: For investors, non-institutional private investing is a $50 billion market that operates with incredible inefficiency. Without open communication, investors must spend time developing relationships and networking to gain access to "deal flow" that they may not otherwise ever find, let alone gain access to. Private equity and venture investments occupy an important place in a well-diversified portfolio for many of the largest investors in the country, but -- in part because of the lack of information -- these investments are largely beyond the reach of most investors (and are costly, with investors paying significant fees). As a result, less than 5% of eligible investors participate in the market, despite attractive historical returns. As an example, in consumer and retail alone, historically individual investors have received an average return of 3.6x their money in 4.4 years. Those types of returns require diversification, and patience, but many advisers would recommend an allocation within a well-diversified long-term portfolio ... if the investor can gain access.
The lift in the ban on general solicitation does not change the risk, or reward, of this asset class. It simply gives investors the option to make a choice about where they want to invest.
Small Businesses: For businesses, particularly those outside of the technology sector, in many cases the old rules force managers to spend more time fundraising than running the actual business. Take the example of Episencial, the maker of baby-safe, all-natural skincare products. After several years of product development and early traction in the market, Kim Walls, the founder and CEO of Episencial, had a passionate following of customers, parents and supporters interested in helping the business grow.
Yet, because of current regulations, Kim could not make even a passing mention of the opportunity to invest in Episencial to her 20,000 fans on Facebook (FB) . Instead, she had completed her fundraising successfully only after establishing relationships with angel investors, many of whom were not yet familiar with the brand. Those most interested in supporting the company were denied the opportunity, while those least familiar with the story were permitted. How does that make sense?