By Kurt Wagner
FORTUNE — Investing successfully in startups takes more than a pocketful of cash. That’s the message venture capitalists and securities regulators hope to transmit to those interested in equity-based crowdfunding, a new form of investing currently awaiting regulatory approval. Ordinary investors will soon have the opportunity to invest in early-stage startups in exchange for company stock. Today, only a small percentage of investors, those who meet certain income and wealth requirements, are effectively able to invest in startups in exchange for equity.
The change is part of the JOBS Act — a.k.a. the Jumpstart Our Business Startups Act — a law signed by President Obama last April. One of its aims is to increase early stage startups’ access to capital. Crowdfunding sites like the wildly popular Kickstarter currently permit prospective ventures to raise funds through what is essentially a donation system. No doubt, millions have been raised to fund the development of gadgets, movies, art projects, even small businesses. But in exchange for their donations, supporters receive small gifts, future discounts, or perks — not a stake in the company. The new law could make this type of fundraising process more appealing to investors because they will receive partial ownership in exchange for their investment.