As we have recently celebrated the fourth anniversary of the signing of the JOBS Act into law, it is a good time to take stock of the effect that the legislature had on equity crowdfunding in the United States. It is important to note, that equity crowdfunding is distinct from the rewards-based crowdfunding, exemplified by Kickstarter, in which project backers are typically motivated by the rewards (discounts), but receive no equity in the ventures. While the rewards-based crowdfunding has always been legal, public solicitation of equity investments (equity-based crowdfunding) was prohibited by the Securities and Exchange Acts of 1933 and 1934.
The JOBS Act contains several provisions that made it easier for the entrepreneurs to raise funding. Title II of the JOBS Act took effect in September 2013 and it allows entrepreneurs to raise funding via online equity crowdfunding platforms from accredited investors. Title III of the JOBS Act took effect in May 2016 and it expanded equity crowdfunding to include non-accredited investors. I recently completed several research projects focusing on leading Title II equity crowdfunding platforms and I will share a few emergent insights here.
Since the passage of the JOBS Act, over $1.27 billion had been committed to more than 6,000 entrepreneurial ventures under Title II. Our analysis revealed that real estate investments have done particularly well under Title II. Patch of Land reports having facilitated more than 500 investments totaling over $300 million. In retrospect, it does not seem surprising that real estate investments do well under Title II because real estate loans represent a large commercial opportunity and they also afford investor protection by securing the loans with the underlying real estate assets.