Mom and pop crowdfunding for startups is about to become a reality

The Securities and Exchange Commission in Washington.
Jim Bourg | Reuters

Mom and pop crowdfunding for startups is about to become a reality.

That's good news, but it also comes with a lot of red flags.

On Friday, the Securities and Exchange Commission is expected to issue a final rule regarding Title III of the JOBS Act. This will allow small companies to directly raise debt or equity capital from friends, family, and interested investors.    

The SEC has taken three years to consider what they are doing, and with good reason.

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In 2012, Congress passed the Jumpstart Our Business Startups Act, known as the JOBS Act. One of its provisions allows new businesses to raise capital from directly from private investors. 

Any investors.

This is a radical idea. Since the 1930s, only "accredited" investors — those with $1 million in net worth or who earn at least $200,000 per year — were allowed to invest in startups.

In other words, only rich people could get in on these private equity deals.