While the general public eagerly awaits the initial public offering of Facebook, anticipated to occur in the next several months, select investors have been buying shares of Facebook for the last few years. Historically, investing in startup companies has been left to wealthy friends and family of the founders, venture capital (“VC”) firms and angel investors. For the most part, the general public has been restricted from making early investments in private companies until they reached the public markets and, at that point, the opportunity for meteoric growth and exponential returns has often since passed.

The passage of the Jumpstart Our Business Start-ups Act (the “JOBS Act”) signed into law by President Obama on April 5, 2012, represents a landmark change in private company investing. Among the other changes created by the JOBS Act (for a summary of the JOBS Act, please click here), Title III of the JOBS Act, the “CROWDFUND Act,” authorizes “crowdfunding,” as an exemption under Section 4 of the Securities Act of 1933—as amended, the “Securities Act”—which will allow certain U.S. businesses to raise equity capital from both accredited and nonaccredited investors without registration with the Securities and Exchange Commission (“SEC”). Also significant, the crowdfunding exemption preempts the application of state blue sky laws to securities issued through the crowdfunding transaction. The crowdfunding exemption will allow the general public to contribute to and share in the growth of small businesses, one of which might just be the next Facebook.