There has been much written on the JOBS Act, and how it could potentially affect individual investors. In case you don’t know, for almost 100 years, average investors (a group derisively deemed the “non-accredited”) have been unable to invest in startups, making this asset class the domain of the very wealthy. With the recent closing of the SEC’s public comment period, Title III of the JOBS Act is inching closer to changing that, allowing the majority of people to invest in companies they couldn’t access before.

Fewer words have been devoted to how the JOBS Act, and the Title III provision in particular, will impact the companies raising money.

In theory, any company will have the opportunity to use an equity crowdfunding platform to raise money, with all potential investors being allowed to participate. However, to balance the open nature of the new participation and advertising rules, the SEC has placed certain restrictions on how much non-accredited investors are allowed to invest each year. Depending on the amount of fundraising undertaken, there are additional restrictions imposed on companies as well. This means startups need to fully consider their position and their goals before simply tossing their hat into crowdfunding ring.

Additional Title III Burdens on Companies

All companies raising money under these new regulations will have to file financial statements with the SEC. If a company raises less than $100,000, its financials can be affirmed by the company CEO. A company seeking between $100,000 and $500,000 must have its financials certified by a CPA. Those raising more than $500,000 must file audited financial statements and are subject to ongoing disclosure requirements. Because of these additional burdens and the costs they entail, companies that need funding in excess of the $500,000 threshold must carefully weigh allowing non-accredited investor participation. To illustrate, preparing audited financials can cost an extra $5,000 or more, and additional risk disclosures for non-accredited investors can extract a comparable toll—not trivial expenses for a lean startup operation. If a company can raise needed funds by only engaging accredited investors, they can avoid these additional expenses.

What Companies Should Not Use Title III

Right now, when I consider the companies that I have helped raise money, I don’t expect that many would have chosen to do so under the auspices of Title III, even if the option had been available. After all, companies that are looking to expand quickly, secure venture capital, and eventually achieve exits are generally very particular about the number and types of investors they deal with. For them, it is a matter of managing risk and increasing efficiency. To accommodate these sensitivities, most equity crowdfunding platforms aggregate the contributions of participating investors in a single LLC, which in turn invests in the startup as a single investor. The LLC is thus the only line item added to the funded company’s cap table, and the company avoids the complications of managing the influx of many individual investors.

In contrast, in a Title III raise, many individual investors invest directly in the company. Considering that these investments are typically small, often in the range of $100 or $500 each, even a modest financing entails hundreds of new investors being added to the cap table. This situation can be a nightmare to manage. A company now has to address the questions and meet the expectations of hundreds of investors, a situation that can seriously divert focus from running the company. As the number of investors increases, it also increases the risk of toxic investors participating. These investors can be unsophisticated, have unrealistic expectations, and are quick to sue when these expectations aren’t met, or simply when they become impatient with their investment.

Startups don’t tend to have the resources to deal with these distractions and VCs are hesitant to fund companies that may harbor lurking investor-related risks. In my experience, having spoken with many VCs over the years, I’ve found that while more are taking a wait and see approach there are some VCs who are open to investing in companies that will use Title III crowdfunding. As one VC told me, “If it’s the next Pinterest, I don’t care how many people are on the cap table.” Of course, companies that have the potential to be “the next Pinterest”, or the next Facebook or Twitter for that matter, are few and far between. If a startup expects to seek VC money at any point, a Title III raise may not make sense.

What Companies Should Use Title III?

Companies that are best suited for Title III fundraising are likely those that already have a fan or customer base that is strongly engaged and is looking for more concrete ways to support the company. For example, a successful local coffee shop or restaurant may have enthusiastic regular customers who want to see the company grow and expand, and are willing to fund this expansion. Gaming companies may also have a lot of success with Title III. For example, a company holding the rights to an older, beloved title that it intends to update could effectively rally the fan base and benefit from a Title III raise.

In 2012, someone bought the rights to the classic game Leisure Suit Larry and used Kickstarter to raise over $500,000 to create a new version. The fans of the title donated on Kickstarter, earning perks in the process, but what if they received equity instead? Giving fans a financial stake in a game’s success could create a new breed of fundraising campaign that raises multiples of the amounts we’re currently seeing on donation-based platforms. This extra money would allow developers to make better games, market them more widely, and allow fans to participate in the profits. I believe Title III is really going to take off in the gaming space. Eventually, as Title III raises become more accepted and sophisticated, they may percolate into the mainstream startup world and tech space, but for the time being, they will most likely be contained to the scenarios I just described.

When Will Companies Be Able To Use Title III?

Quite honestly, no one is sure. I expect to see Title III go into effect in either late Q3 or early Q4 of this year at the earliest. The proposed SEC rules for Title III compile to over 500 pages in total, and the public comment period ended on Monday. There are likely hundreds of comments for the regulators to consider. This is a lot to digest. Once the SEC finishes its review, it will issue a revised set of rules which will be open to yet more public comments before the rules will officially be adopted. Implementing this kind of financial change is a marathon, and we are nowhere near the finish line.

Once the SEC rules are in place, there’s still an issue of which venues companies can go through to raise money. Companies must raise money through a “funding portal” registered with FINRA. The FINRA approval process should take from three to five months, but sites seeking this designation can’t apply just yet, as FINRA hasn’t released its own rules or guidelines regarding the application process. It’s also unclear whether existing broker-dealers need additional approvals from FINRA to conduct Title III raises. Requiring additional approvals for broker-dealers is unlikely, but, at this point, we simply don’t know what FINRA will decide. So, it’s entirely possible that Title III could go into effect without a legal venue immediately available for companies to raise money.

What does all this mean? At this juncture, anything is possible, and only time will tell. Important questions remain unanswered. Make no mistake, however: this is a case of ships looking for a port in the storm and the ports anxiously awaiting the seas to calm just enough to let them in.

Bill Clark is the President and Founder of MicroVentures, an online Venture Capital Investment Bank that allows investors to invest as little as $5,000 in curated startup companies. He has more than a decade of top level management experience in the credit risk management and financial services industry, giving him both the key strategic focus and critical evaluation skills essential to help investors connect with startups, and you can follow him on Twitter at @austinbillc.