The Wisdom of Crowds (Funding)

Photo of the trunk of a Yellow wood (Amarillo) tree in PanamaLooking up the trunk of a Yellow wood (Amarillo) tree in PanamaLast Thursday, the US Senate approved the JOBS Act, a piece of legislation that would make it easier for small businesses to raise financing. The bill was passed in the House a few weeks ago, and now, with the Senate’s changes, will go back to the House for debate and (hopefully) approval. It would then move to President Obama, who has already said he will sign it into law.

From our perspective, the bill represents a couple of features that would enable smaller investors to access the forestry investments marketplace.

First, the bill contains a provision for crowdfunding, or aggregating smaller investment amounts from individual investors. Businesses such as ours would be able to raise up to $10,000 per investor in equity financing without violating SEC restrictions on raising capital from “unaccredited” investors. Small businesses could raise up to $1 million per year total before having to register, and publicly advertise their investment opportunities.

Traditionally, businesses seeking to offer investments to the general public needed to register with the SEC - a costly and time consuming process. The crowdfunding method would allow us to offer the Forest Investment opportunity to smaller investors.

Private companies could also maintain more shareholders - 2,000 vs. the current limit of 500. With ~75 investors, Planting Empowerment is a long way from hitting that limit, but it’s encouraging to know we’ve got plenty of runway.

Secondly, the legislation eases restrictions on companies considering going public. If a company decides to go public, the JOBS Act would enable it to sell $50 million in shares before registering with the SEC.

While we’re excited about the possibility of new financing possibilities, we’re also aware of the risks to smaller investors. There will be fraudsters, and there will likely be horror stories about retired couples who lost their savings on a risky company. To be sure, these investments are not for everyone, and investors will need to perform more of their own due diligence. For example, investors interested in forestry should learn how to choose forestry investments and think about how those holdings may fit into their broader portfolio.

In the end, we think that the JOBS Act will be a net positive for small investors, social enterprises, and society as a whole.