The not-Steve JOBS Act

At the beginning of the year, some of the most influential websites came together in order to raise awareness and, more importantly to them, ensure that a piece of legislation did not become law. While we had heard of the two bills being considered – SOPA and PIPA – we could not profess a deep understanding. We came away with a basic understanding that a) Google, Wikipedia, and a whole bunch of well-known individual, tech influencers did not support the bill; and, b) the government really has an affinity for acronyms. That they can come up with so many four letter quasi-words continues to amaze. Remember TARP?  

During the time that SOPA and PIPA were gaining some traction on the public stage another bill was being ushered through the political machine. It too carries a four letter moniker, and while it might sound like something directed from the late Apple CEO, the JOBS Act has nothing to do with the world’s most valuable company. The JOBS in this case stands for “Jumpstart Our Business Startups,” with the emphasis on startups being an unusual inclusion in past legislation. Entrepreneurs, as President Obama says on a video found on the WhiteHouse’s Startup America page, “embody the promise of America: the idea that if you have a good idea and are willing to work hard and see it through, you can succeed in this country. And in fulfilling this promise, entrepreneurs also play a critical role in expanding our economy and creating jobs." And, as the site states, “In January 2011, President Obama called on both the federal government and the private sector to dramatically increase the prevalence and success of entrepreneurs across the country.” Early last month, the fruits of his labor became law.

That the Obama administration would focus on entrepreneurs and startups seems fitting, as the entrepreneur community, especially the tech community, supported candidate Obama heavily. The question is what type of “policy initiatives,” can help entrepreneurs? Here’s what the administration wants to achieve.

Unlocking access to capital to fuel startup growth

Connecting mentors and education to entrepreneurs

Reducing barriers and making government work for entrepreneurs

Accelerating innovation from “lab to market” for breakthrough technologies

Unleashing market opportunities in industries like healthcare, clean energy, and education

In an article on Forbes.com, author J.J. Colao, helps distill the 20-page bill. The portion of the JOBS Act that has received the most awareness corresponds to the first point above, unlocking capital. As Colao writes, the JOBS Act legalizes crowdfunding. In the area of crowdfunding, Kickstarter has received an immense amount of attention by enabling anyone to raise money. While a platform for raising and tracking the collection of proceeds against a goal, Kickstarter can only accept donations. They aren’t buying a stake into the company, and if they company does well, they get to feel good but not in the wallet. That is one thing that the JOBS Act wanted to change – to allow anyone to become an investor and allow any company to raise money.

A. Individuals – can contribute the lesser of 10% of annual revenue or $10,000.

B. Companies – business can raise up to $1 million a year, which is raised to $2 million per year with audited financial statements.

Another major change to the private company ecosystem is a modification to the rules on how many private shareholders a company can have. Currently, when a company has 500 or more shareholders and $10mm in revenue, they face immense pressure to go public. Google, and presumably Facebook, is a classic example of a company that would have probably stayed private longer had it the opportunity. The cap goes from 500 to 2000. Additionally, there are changes being made to more technical components of money raising – Regulation A exemptions and Regulation D solicitations – components that are arcane to the general population. In the case of the former, it means more money can be raised by a company without having to do reporting, while in the latter, it gives more latitude for whom companies can solicit investment, in this case the general public.

Lastly, the bill creates a new type of company, the “Emerging Growth Company.” It looks to ease some of the restrictions, and thus cost, associated with going public for entities with less than $1 billion in annual revenue. As J.J. Colao points out, critics of the bill focus on an easing of restrictions currently placed on those who cover stocks – the Chinese Wall put in place to prevent conflicts of interest where analysts tout companies to help their banking counterparts continue to get business.  The Wall Street Journal is less concerned, saying, “What the opposition to the bill really shows is Washington’s continuing hostility to risk-taking and capital creation. Regulators and liberals claim to want more jobs and growth, but not if it means taking their hands off the economy’s financial choke points. They’re afraid someone might make a buck without their say-so. This is what sends IPOs overseas and has produced the slowest recovery since the Great Depression.”

From the cheap seats, we’re not sure. On one level, we see a new breed of companies gaining traction by being able to take money from a bigger, non-traditional pool of capital. At the same time, we see rules that seem to make it easier for companies to avoid disclosures. The only thing we know for sure, is the JOBS Act is going to be a big initial area for performance marketers and lead generation. You can just see the opportunities – the bizopp ebook guys are going to have a field day. You have a whole new audience of potential entrepreneurs who will shell out money and you have a whole new class of people who will hear about the chance to invest in startups. You will have a new class of business broker emerge to help raise money, and it would seem a whole new type of lead gen aggregator for businesses and consumers. You can almost see the headlines now. Don’t get too excited, not yet anyway. We still have 220+ days before the floodgates open and to see if any last minute changes get made and for some of the rules around crowdfunding regulations to become finalized.