There is a good argument to be made that the JOBS Act has thus far been a disappointment.
The JOBS Act a Disappointment?
Why would I say such a thing?
Not because of the IPO on-ramp provisions. Those are fine and good and appear to be working great.
The JOBS Act is a disappointment because of the private company fund raising provisions.
- We still don’t have equity crowdfunding. It is unclear when the SEC will adopt the final rules. But even when the SEC adopts the final rules, federal equity crowdfunding is going to be difficult and not very satisfying to startups. The JOBS Act imposes too many obligations on companies that want to use its crowdfunding provisions. The cost to raise capital using federal equity crowdfunding is going to be very high. SeedInvest estimates that to raise $1M will cost $250,000. This is ridiculous and absurd. It is too bad that Congress didn’t pass a law that could work without such great expense. We need Congress to revisit and refine the law.
Here is what Mary Juetten of Traklight has to say about it:
“It is our hope when the SEC finally releases the federal crowdfunding rules that they incorporate many of the changes proposed during the comment period. Otherwise federal crowdfunding may remain cost prohibitive for small businesses, thus defeating enhanced access to capital for startups, one of the core purposes of the JOBS Act.”
- The general solicitation provisions got ruined at the last minute and then the SEC finished ruining them with disastrous verification and other proposed rules. What am I talking about? The first draft of Section 201(a)(1) didn’t include any language that would have supported verification of investor accredited investor status. The second sentence of Section 201(a)(1) was added as a result of a discussion in a House committee hearing. Most present probably had no idea that a harmless one sentence addition would result in the SEC proposing its lengthy and cumbersome investor verification rules. (If you want to read a transcript of the House hearing at which this occurred, I included it in my comment letter to the SEC on its proposed Regulation D and Form D rules.) Then the SEC issued proposed rules which evidenced even more hostility on the part of the regulators to the very concept of general solicitation.
What Can Congress Do Now?
Do we need a new JOBS Act, one that fixes the mistakes of the first? I would say yes.
My friend Dan Lear and I have written a letter that is ready for you to hand to your Congressional representatives.
Regarding the JOBS Act, here are my recommendations:
- Allow general solicitation as it was intended, without onerous investor verification standards. Repeal the second sentence of Section 201(a)(1) of the JOBS Act. Please see this blog post I wrote on this topic.
- Fix the crowdfunding provisions so that they will actually work for startups and emerging companies.
- Stop the SEC from finalizing its proposed rules on Regulation D and Form D. These are the rules that Fred Wilson has written would neuter the JOBS Act.
What Can You Do?
Write your Congressional representatives. Hand out the letter Dan and I wrote. Please keep advocating for better laws for startups and emerging companies.