The future looks bright for early-stage companies seeking capital as we prepare to celebrate the one-year anniversary of the JOBS Act – Title I.
Emerging growth companies (defined as a company with total annual gross revenues of less than $1 billion during its most recently completed fiscal year) have enjoyed relaxed requirements around fund raising in the public market. Title I allows companies to submit only two years of audited financial statements, report as a Smaller Reporting Company, and avoid the standard requirement for Sarbanes-Oxley Act. In addition, companies seeking to raise capital from the public market can now submit a confidential S-1 in an effort to test the waters. This allows companies to receive feedback from the SEC prior to committing to a formal initial public offering (IPO).
During the 12-month period from September 15 2013 to September 15, 2014, approximately 370 companies filed to go public. In contrast, only 256 companies filed to go public in the calendar year of 2013.
For early-stage companies attempting to raise capital from the private markets, Title I allows for less regulation around general solicitation and advertising of privately held securities. In simple terms, it allows entrepreneurs the ability to publicly advertise their fund raising efforts. The main caveat is investors must be accredited and entrepreneurs are required by law to ensure investor accreditation by reviewing credit reports, tax filings, and bank statements.
Entrepreneurs can alleviate the verification burden by utilizing fund raising platforms, which verify investor accreditation free of charge. The pioneer in fund raising platforms, AngelList, was founded in early 2010 and to date has facilitated over $200 million in investments.
Syndicates Streamline the Process
At the end of 2013, AngelList announced a Syndicate Program, allowing angel investors to raise committed capital for future investments. This program enhanced entrepreneurs’ ability to target seasoned investors with solid track records. Today, the top syndicate, Gil Penchina, has raised close to $4,500,000 to back promising entrepreneurs.
Pooled capital makes fund raising easier for entrepreneurs who previously needed to reach out to several dozen investors before getting a lead or anchor investor. Entrepreneurs can now focus on syndicates the same way they focus on venture capital funds.
Fund Raising Ecosystem
There are other public platforms available. Second to AngelList is Onevest (a merger of RockThePost and CoFoundersLab), which is backed by Shark Tank’s Barbara Corcoran. RockThePost was founded in late 2011 and to date has facilitated over $90 million in investments. The main difference between AngelList and Onevest is the former is investor focused. On Onevest, entrepreneurs cannot view investor profiles and determine which investor would be the best match for his or her company. However, RockThePost offers educational events for both investors and entrepreneurs.
The Key to Accessing Capital Quick
Investors put their money into companies that have traction. This traction may be in the form of revenue, customers, or simple investor interest. Entrepreneurs should study the investor landscape, secure a lead or anchor investor, and then display their company’s profile publicly.
The world of finance is flattening. It has never been a better time for early-stage companies to raise capital. With SEC relaxing requirements and technology bringing people together, entrepreneurs are raising capital with ease.