Should the $1 Million Title III Cap Be Raised?


Although small business are looking forward to the long overdue Title III regulations that will allow them to raise real equity from small non-accredited investors, it may not be the financial dream that it seems. The expected cap on the amount of funding that will be allowed is just $1 million. The goal of the cap is admirable: to limit the risks for the small business and the investor.

There is one question to be asked: would having $1,000,001 really be more risking than just having $1 million? Although that question could be asked at any cap level, the results from the UK prove that $1 million is probably too low of a number. A publicly traded company called Chapel Downs was able to raise nearly £4 million on an equity crowdfunding platform.

Last we checked, the UK is still thriving.

Change Might Be In the Air For More Money

Raising the cap above $1 million has been on many minds as of late, especially since 2015 is expected to be the year that Title III finally becomes a reality. Congressman Patrick McHenry has long been a big backer of the JOBS Act and his thoughts are that the cap could be raised as high as $10 million without there being much additional risk to the American economy.

There will always be the idea of risk in the back of an investor’s mind, but the risks of high value funding are negligible. In a world where $75 million can easily be raised through equity crowdfunding for real estate projects, why would $1 million in the small business industry, where 98% of jobs are created, be so problematic?

There are two reasons behind this:
1. The government is trying to still limit investment access to the wealthiest 1% of the nation.
2. There is an overt lack of trust in the American public.

We believe the issue here is one of timing. When the JOBS Act was initially proposed, many industries were still feeling the direct effects of the Great Recession of 2008-2009. The caps were in place because credit was tightening up all over the place. By limiting access, it would become possible to limit the potential losses of a failure if it occurred.

The economy has progressed past this point. Incomes are finally starting to increase. Some households are going to see their first raise in 8 years in 2015. Combine this with the fact that the companies who will be equity crowdfunding will not be risky startups, but companies that have already got their proof of concept accepted, and you will be having investors line up around any virtual corner to put down $100 [if not more] to earn a return.

Is America Still a Democratic Economy?

With the cap in place, it is the small business and the small investor that will suffer. We have proven time and time again that when the lowest economic classes find success that we all find success. The poor should have to rely on a 1 in 20 billion shot at the lottery for the chance to change their stars. They should be given the opportunity to invest what they have into an exciting opportunity so that they can legitimately earn their way into new tax brackets.

If a household’s extra $20 on a $1 million investment is really that much trouble, then why are we even bothering with Title III at all?

If the cap is going to remain at $1 million, then the workaround solution that several states have created in the absence of Title III might be the answer. It harkens back to the era where states could control their own destiny, set most of their own rules, and govern themselves in whatever way they saw fit. Equity crowdfunding has been happening at the state level and it has been successful.

If common sense ruled the day, we would look at the examples in the UK and the examples set by the states and see that the low cap just doesn’t make sense. Unfortunately common sense is not ruling the day. We’ve invented a desire to prevent fraud as a way of covering up the fact that the upper echelons of society don’t want to share success.

People can’t be protected from themselves forever. It takes risk to build wealth. Sometimes an investment won’t pay a return like expected. Those in the wealthy class have filed for bankruptcy just like the 99% have. The only difference is that the wealthy class isn’t limited to a $1 million cap.

Everyone else will be. That needs to change… or the retail crowdfunding industry is going to be dead on arrival.