For many entrepreneurs, persuading investors to fund startup companies has always been a struggle, but a federal law that took effect Monday and that’s expected to impact Gainesville, may make it easier.
The law, Title II of the Jumpstart Our Business Startups Act of 2012 (JOBS), amends a law from 1933 that made it illegal for companies to use mass communication to solicit potential investors, said Tanya Prive, a contributor to Forbes and co-founder of RockThePost, a startup investing marketplace.
Now, companies can put out print media and TV advertisements, and even post on social media to spread the word that they’re looking for investors.
“It is true that you can go ahead and tweet that you are fundraising and take an ad out on TV… but what comes with the privilege is additional responsibility that startups need to ensure that they fulfill,” Prive said in a phone interview.
Even though the asking is easier now, the law restricts whom startups can take investments from.
Startups can only accept money from individuals who meet minimum annual-income requirements or have at least $1 million in assets, Prive said.
The transactions must be recorded and submitted on federal documents, or a startup can be deemed a “bad actor.” As a consequence, the entrepreneur would not be allowed to fundraise for a year.
“For a startup, that actually could mean death,” Prive said.
Some local entrepreneurs expect the law will have a positive impact on Gainesville.
“With an increased opportunity to reach out to capital investors, our local startups will have a better chance at securing investment,” said Adrian Taylor, the vice president of Innovation Gainesville.
Anjali Kundra, a UF alumna and one of four people who represented Gainesville at a global entrepreneur congress in March, cautioned that the JOBS Act isn’t the entire solution to the time-consuming task of gathering enough cash to get off the ground.
“A lot of companies here think that funding is the turnkey of success, but that’s not always the case,” Kundra said, instead urging entrepreneurs to self-fund projects first.
Julian Miller, a fellow UF alumnus who joined Kundra at the congress, said the law will encourage more people to give entrepreneurship a shot — even if the race to solicit funds is chaotic at first.
“It’s probably going to blow up and be really ugly for a while, but once it stabilizes, there will be power to create jobs where there were none,” he said.
Jane Muir, director of the UF Florida Innovation Hub, said she hopes the new law helps startups get through “the valley of death” faster, but the actual effects are yet to be seen.
“I think the intention is good,” she said. “I’m going to be interested to see what impact it will really have.”
A version of this story ran on page 1 on 9/26/2013 under the headline "Startups can now solicit investments with some restrictions"
Customer experience employee Brittany Ferguson assists visitors at Fracture on Monday afternoon. The startup, located at 112 SW 6th St., has recently been featured in a national TV spot.