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Private Company CrowdInvesting On The Verge Of Takeoff

Written by Ken Gaebler
Published: 9/17/2015

The good news is that regulatory changes are making it easier for small companies to raise money. The bad news is that regulatory changes are making it easier for small companies to raise money.

You may not know it but U.S. laws have changed recently, and the goal is to help business owners raise money.

Regulation A Investing

Title IV of the JOBS (Jumpstart our Business Startups) Act implements some significant changes to Regulation A small public offerings.

Regulation A offerings date back to the first passing of the Securities Act of 1933. They have allowed small companies to raise money from the public without the same regulatory burden that bigger companies face when they pursue a public offering.

This was great for small companies who were raising money, but there was one drawback: Regulation A offerings were limited to $5 million.

The JOBS Act bumps the size of a Regulation A offering up to $50 million. Any investor, whether or not they are accredited, will be able to invest.

Investors Should Be Cautious

Just a few short months ago, the SEC enacted the final portions of the JOBS Act, allowing just about anybody to invest in private company equity.

Going forward, much of this will be done online via new crowdinvesting platforms. As an investor, you'll have the opportunity to browse a bunch of private company Regulation A offerings and invest with the click of a mouse. Many new ventures, such as StartEngine.com and EarlyShares.com, hope to facilitate those investments.

If this sounds risky to you, well, duh. These investments are high-risk and illiquid. Many investors could get hurt.

A Market for Screening Private Company Investment Opportunities Emerges

Just as there are a number of startups vying to become the de facto crowdinvesting platform, there are also startups aiming to advise investors and protect them from making bad investments.

Crowdability is one such startup, billing itself as the world's first "stock screener" for private companies. This week, they've announced CrowdabilityIQ, an offering designed to protect investors by rating and ranking hundreds of private investment opportunities and making the information available via a single, comprehensive website.

"Soon, all U.S. citizens, regardless of their net worth or their financial sophistication, can invest in unproven, privately-held start-ups they discover online," said Crowdability co-founder Matt Milner. "We've created this software to protect them. Our mission is to help individual investors avoid the riskiest start-up investments, while drawing their attention to the ones with the most potential. By using this one simple tool, investors can dramatically reduce their risk."

CrowdabilityIQ subscribers include retail investors, institutional money managers, wealth managers and venture capitalists who are looking for potential investment ideas.

Wayne Mulligan, another co-founder, says that Crowdability's mission is to become the "Morningstar for private equity."

If they execute well, this could be a big opportunity. TheStreet.com estimates that equity crowdfunding could quickly become a $300 billion industry.

There's a lot of potential money to be raised by companies, but there's also going to be a lot of investors who throw money at bad companies. With the right checks and balances in place, it just might revolutionize the world of small business financing.

Time will tell, and when it does, you'll read about it here.

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