What Will the JOBS Act Do for Startups & the Tech Industry?By: Abby Johnson - April 12, 2012
Last week, President Obama signed into law the Jumpstart Our Business Startups Act, more commonly known as the JOBS Act. The White House administration is hoping that small businesses and startups will drive recovery and create new jobs.
In a press release the White House released, the President said:
“America’s high-growth entrepreneurs and small businesses play a vital role in creating jobs and growing the economy. I’m pleased Congress took bipartisan action to pass this bill. These proposals will help entrepreneurs raise the capital they need to put Americans back to work and create an economy that’s built to last.”
What do you think the JOBS Act will do for small businesses and startups? Please share.
The bill covers several provisions, but the most prominent one is “crowdfunding.” Under this element, startups and small businesses can solicit the general public for investment, which democratizes funding efforts.
Michael McGeary, who is a strategist with venture capital firm Hattery Labs, worked with lawmakers on this bill and told us that crowdfunding was the “#1 way for direct benefits as the bill rolls out.”
“It’s gonna make it available for people all over the country to give what they can to a startup they believe in and get equity in return, which will help on both sides,” he said.
Crowdfunding will specifically help those startups that don’t need millions of dollars but that still need some to get their feet of the ground. McGeary said it would help startups become companies more quickly and also give them more growth potential. He also told us that he expects to see more companies such as Kickstarter and IndieGoGo as the JOBS Act is rolled out.
While some people have questioned the impact of crowdfunding on traditional funding methods, McGeary doesn’t believe they will be harmed in any way. In fact, he believes they will be enhanced by crowdfunding.
“Crowdfunding is not going to utterly change that system,” he said. “All it’s gonna do is make it better for more people to get more ideas to the marketplace faster.”
He went on to say that it would draw in a wider community to what’s happening in the Silicon Valley because more people will be involved. This will furthermore help to create a more transparent startup economy since the community will be bigger and more diverse.
The JOBS Act will also lighten the regulatory hurdles that small businesses must go through in the expansion of “mini public offerings” and the creation of an “IPO On-Ramp.” These provisions will not only eliminate forced IPOs, but it will also speed up the process for businesses to grow at a faster rate.
Despite the strong bipartisan support, there has been some opposition to the bill. In a post in Rolling Stone entitled “Why Obama’s JOBS Act Couldn’t Suck Worse,” Matt Taibbi discusses the fraud and scams that could take place in the stock market as a result of the law:
“In fact, one could say this law is not just a sweeping piece of deregulation that will have an increase in securities fraud as an accidental, ancillary consequence. No, this law actually appears to have been specifically written to encourage fraud in the stock markets.”
The Huffington Post also pointed to the dissatisfaction of the labor parties suggesting that the White House chose the tech community to alleviate concerns raised over the SOPA outbreak in January. Others have indicated that the law could open the door for weak IPOs.
McGeary, however, told us that he does not believe the negatives outweigh the positives. According to him, the people who are advocating the law are adamant on its success and, therefore, are determined to keep fraud away.
“There’s no investment without risk,” McGeary said.
“If bad actors do enter the system and fraud does start to proliferate through the crowdfunding system, there’s gonna be a movement afoot in Washington very quickly to make sure that any regulations that have to be changed or augmented in that way, will happen swiftly,” he added.
While McGeary believes the JOBS Act is a “great first step,” he believes that more needs to be done in terms of the startup community, especially in the areas of long term STEM education and spectrum and broadband patents.
The SEC is currently requesting feedback on the law, as it contemplates potential regulatory measures.
Do you see more concerns or benefits with the JOBS Act? Let us know in the comments.