Two years ago, on May 16, 2016, Title III of the JOBS (Jumpstart Our Business Startups) Act went into effect. The landmark provision was signed into law by President Barack Obama and the purpose was twofold: to give startup companies a yet-untapped source of funding; and perhaps more consequentially, to give retail investors the chance to invest in private companies.

Before, only accredited investors — that is, individuals with a net worth of at least $1 million, or an annual salary of at least $100,000 — could invest directly in startup companies. But when Title III went into effect, anyone could invest between $100 and $2,000 per year into early-stage startups — effectively setting the groundwork to democratize the world of private equity.

For startups, Title III created an opportunity to raise funds (up to $1,070,000 every year) from a new investor segment on top of what they’re able to raise from the traditional sources: venture capital firms and angel investors. Title III also gave the companies the chance to build recognition and generate buzz around their product or idea.

Through equity crowdfunding (ECF) platforms like Wefunder, AngelList, SeedInvest, and Republic, private investors can learn about and eventually invest in some of the most compelling private equity opportunities out there. Essentially, these would be considered companies that investors think could turn out to be the next Google or Facebook.

For companies that eventually go public, the greatest period of growth often happens while the company is still privately-held. By the time a company has had its initial public offering (IPO), most of the growth has already happened. It’s rare for a company to grow the way Google has since it went public. If you had bought shares of Google in 2004, when the company first listed on Nasdaq, you would have seen your investment grow by 1886%. $5,000 worth of shares of Google in 2004 would be worth nearly $100,000 today.

But again: Such an outstanding return on investment in a large, publicly-traded stock doesn’t often happen. Growth like that is more likely to happen while the company is still privately held. In fact, it’s not uncommon for private equity opportunities to return 20, 50, or even 100 times the initial investment. Even Google, which started out as a research project, saw the most growth while it was privately held.  

To be sure, investing in private companies carries far more risk than investing in publicly-traded companies. A private investment portfolio of 20 companies with just two or three companies that eventually have a major liquidation event, e.g., a buyout or listing on a public exchange, is considered very successful.

So, how successful have investors and companies been in the wake of Title III? One expert’s findings were rather intuitive.

“Projects that get funded have angel or angel syndicate backing,” said Dr. Ross Malaga of Montclair State University. In other words, common investors are more likely to put their money into a private equity opportunity with an experienced angel investor already behind it.

“80.8% of ventures that received funding from a prominent angel investor prior to soliciting funding via equity crowdfunding were successful,” Dr. Malaga and his colleague Dr. Stanislav Mamonov wrote in their study on equity crowdfunding. “91.7% of companies that received funding from a venture capital firm prior to the engagement in equity crowdfunding platforms were successful in hitting their funding targets.”

The professors studied 133 projects that sought funding between May 2016 and February 2017 across 16 different ECF platforms. They concluded that “while the Title III goal was to open access to early-stage venture investments to non-accredited investors, it is the sophisticated, and likely accredited, investors who play the critical role in venture fundraising success under Title III.”

Dr. Malaga said that it’s too early to say what impact Title III has had on common investors. “The ultimate success [in ECF] is getting your money back,” he told Startup Beat. Companies don’t tend to see a major liquidation event until — at the earliest — at least five or seven years after they’ve obtained private funding. It’s hard, then, to quantify just how much common investors have benefited. Dr. Malaga said he plans on studying this topic, but said he couldn’t offer a timeframe when asked about one.

He told Startup Beat how the cryptocurrency explosion in 2017 put a drag on equity crowdfunding. Stories of savvy and fortunately-timed crypto investments captured the attention of would-be ECF investors. Even startups refocused on leveraging the Block Chain for a new medium of funding. One advantage is that ICOs usually don’t require the company to give up equity.  

“Initial Coin Offerings (ICOs) are easier than traditional fundraising,” Dr. Malaga said.

So far, there’s no cap on the number of money companies can raise via ICOs. Further, ICOs make it so that entrepreneurs don’t have to depend on blue-blood venture capital firms to be successful.

But citing Bitcoin’s fall from highs of nearly $20,000 back in December, Dr. Malaga believes there could be “a swing-back” to ECF. If one thing’s for sure, it’s that private investment is more robust than it’s ever been. Private asset managers in the U.S. raised a record $448 billion in 2017, a 3.4% year-over-year increase.

It’s hard to say whether retail investors will find the most success putting their money into cryptos, public markets, or in private ventures. But the potentially disruptive and lucrative opportunities that Title III brought to the masses certainly aren’t disappearing.