When Enron imploded in 2001, it was a kick in the gut for U.S. investors. People were steaming mad about the corruption. And rightfully so.
Politicians felt they had to respond. The primary “reform” passed into law was the Sarbanes-Oxley Act (SOX). Among other regulations, it required public companies to recruit independent board members and audit committees.
In effect, SOX made it far more costly to be a public company. Especially for small-cap and microcap companies.
As is often the case, the government’s reaction to this crisis didn’t help much. In fact, its actions caused significant harm to public markets. After SOX was implemented, a new trend began. Private companies avoided going public for as long as possible.
As you can imagine, this meant that when companies offered stock to the public, it was much later in their growth curves. Since SOX, public market investors have missed out on most of the great U.S. growth stories.
Most of the gains were captured by private market investors. The trend has only strengthened over time.
For most of the past 82 years, to be a private market investor meant you had to be wealthy. The whole situation worked out rather well for the 0.1%. But savvy investors knew they were missing out on the investments with the greatest potential…
So, they pushed the government to open up private opportunities to all.
In May 2016, the last and most important reform of the JOBS Act of 2012 went into effect. Finally, all investors can access private markets via equity crowdfunding. With as little as $100, anyone can invest in private early-stage companies—startups valued anywhere from $1 million to $50 million.
It’s shaping up to be a beautiful market. One where thousands of small investors can collectively help their investments succeed. And it’s not just good not for investors, but also for small businesses and start-ups. And that’s where real meaningful economic growth occurs.
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