The Jump-Start Our Business Start-Ups, or JOBS, act was signed into law last week, opening up businesses in need of financing to an unlimited number of investors around the web looking to help launch the next small business idea.
The bipartisan bill H.R. 3606 will create an online marketplace where, "For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in," President Barack Obama said in remarks in the Rose Garden last Thursday, according to news reports.
The new job act will allow any person who is interested in investing to help "crowd fund" start-ups and small businesses by pitching money (up to $2,000 or 5 percent of their annual income or net worth, if either their annual income or net worth is less than $100,000) into a pool with other interested investors who help provide help for a company that is looking to launch a new product or expand their company.
Current crowdsourcing platforms, like Kickstarter, allow people to kick money to help launch the next big idea, new project or even something as simple as an exciting vacation for just one person, but the JOBS act will allow any person to purchase shares and stock in the company, with the money they invest growing or disappearing with the success of the company.
Businesses will publish their proposal and draw in investors, who will then work through intermediaries to secure the funding between both parties, making sure that investors are making sound decisions, said Jordan Wolf of PolicyMic.com.
Some critics, however, are concerned about the potential the JOBS act has to suck in investors who spend beyond their means trying to get in on the "ground floor of the next Facebook."
"My concern is that the Internet opens up crowd funding to affinity, social networks and pure hype. More importantly, it will play off of people's greed," Charles Rotblut wrote in a story on Forbes.com.
Under the JOBS act, businesses will be able to accept money from investors, foregoing lengthy and costly paperwork and SEC filings for a period of time, or until the company's revenue reaches a certain point (total annual gross revenues of more than $1 billion).
The law is in a comment period right now, and the SEC will be listening for proposed rules to ensure that money being invested by the eager public is made with good financial standing and background. Following the comment period, the proposed rules will be considered and signed before making the bill goes into effect.