It is not every day that one of my clients gets invited to the White House to witness the President sign new legislation. So I was pretty excited this afternoon to watch the live streaming video of President Obama signing the Jumpstart Our Business Startups (JOBS) Act, because Heather Van Sickle, executive director of the National Association for Community College Entrepreneurship, was in the audience. Alas, I never caught sight of her. But it was nonetheless exciting!
But the real reason to be excited, of course, is that this legislation will provide new access to capital for start-ups and small businesses. Here are the key elements of the JOBS Act that you should know about:
- Allowing Small Businesses to Harness “Crowdfunding” – The Internet already has been a tool for fundraising from many thousands of donors. Subject to rulemaking by the U.S. Securities and Exchange Commission (SEC), startups and small businesses will be allowed to raise up to $1 million annually from many small-dollar investors through web-based platforms, democratizing access to capital. The bill includes key investor protections, including a requirement that all crowdfunding must occur through platforms that are registered with a self-regulatory organization and regulated by the SEC. In addition, investors’ annual combined investments in crowdfunded securities will be limited based on an income and net worth test
- Expanding “Mini Public Offerings” – Prior to this legislation, the existing “Regulation A” exemption from certain SEC requirements for small businesses seeking to raise less than $5 million in a public offering was seldom used. The JOBS Act will raise this threshold to $50 million, streamlining the process for smaller innovative companies to raise capital consistent with investor protections.
- Creating an “IPO On-Ramp” – The JOBS Act makes it easier for young, high-growth firms to go public by providing an incubator period for a new class of “Emerging Growth Companies.” During this period, qualifying companies will have time to reach compliance with certain public company disclosure and auditing requirements after their initial public offering (IPO). Any firm that goes public already has up to two years after its IPO to comply with certain Sarbanes-Oxley auditing requirements. The JOBS Act extends that period to a maximum of five years, or less if during the on-ramp period a company achieves $1 billion in gross revenue, $700 million in public float, or issues more than $1 billion in non-convertible debt in the previous three years.
Additionally, the JOBS Act changes some existing limitations on how companies can solicit private investments from “accredited investors,” tasks the SEC with ensuring that companies take reasonable steps to verify that such investors are accredited, and gives companies more flexibility to plan their access to public markets and incentivize employees.
Crowdfunding is a particularly exciting concept for small business owners. We’ll have more on that topic in an upcoming post.