Stephen Fleming on the JOBS Act

Editor’s Note: In an unprecedented move in recent years, Congress unanimously passed The JOBS Act last month and it is due to be signed into law by President Barack Obama today. Widely supported by luminaries in the technology industry such as Steve Case and pro-business organizations such as the United States Hispanic Chamber of Commerce (USHCC), the legislation did not receive as warm a reception in media including Bloomberg Businessweek and The Next Web. 

The following is Atlanta angel investor and Georgia Tech Vice President Stephen Fleming’s personal take on the soon to be legislation.The post originally ran in AcademicVC, Fleming’s personal blog. As always, please add your views to the comments section.

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In today’s political climate, it’s hard to believe that a major bipartisan reform has passed both houses of Congress and — as I type this on Wednesday night — is scheduled to be signed by the President tomorrow. The JOBS (Jumpstart Our Business Startups) Act is one of the first victories of a new class of politically-active entrepreneurs, angel investors, and venture capitalists. And, although no bill is perfect, the JOBS Act should lead to expansion opportunities for many small businesses… and, yes, to more jobs.

U.S. securities regulations are written for big companies. For successful ones, like GE and Apple. And for failed ones, like Enron and Worldcom. But little companies have to play by the same rules. That makes it incredibly difficult for small companies to raise capital, to reward their employees with equity instead of salary, and to build their businesses in the early years. The Kauffman Foundation has shown that all net new job growth since 1980 has come from companies less than five years old. The JOBS Act is aimed at helping precisely these companies. Part of the act loosens some of the complex disclosure requirements which can be difficult for a fast-growing company to maintain when it exceeds 500 employees. It makes it legal for an entrepreneur to stand on stage and say “I’m trying to raise money” without violating SEC rules. These are good changes. It’s not appropriate to regulate a tiny company the same way we regulate GE.

Most controversially, the JOBS Act enables “crowdfunding.” Today, unless you meet the SEC’s “millionaire threshold,” you are forbidden to invest in private companies — that is, those companies who do not have their shares listed on a stock exchange like Nasdaq. Tomorrow, that will change. You will be able to invest up to $10,000 or 10% of your annual income (whichever is lower) into a small private company. And that doesn’t necessarily have to be a Georgia Tech startup creating a hot Internet security technology. It can be in your cousin’s landscaping business, or in the struggling Cuban restaurant down the street.

The laws prohibiting these investments date back to 1933. It’s time to adapt them to current reality. Will some people lose their investments? Absolutely. Will there be fraud? As surely as the sun rises in the east. But markets always involve risk (and, sadly, markets have always attracted a small number of fraudsters). I have a lot more faith in free markets than I do in SEC regulators trying to apply thousands of pages of regulations to small businesses that can’t afford platoons of lawyers on retainer.

Silicon Valley investors have played a big part in lobbying for the JOBS Act… but I think it will eventually have more of an impact on those of us who are happy to live in the rest of America. A startup in Silicon Valley can, eventually, always find money. That’s not true for a startup in Atlanta… or Albuquerque, or Alaska. Loosening the constraints and letting more Americans get involved in investment decisions will be a good step towards making more growth capital — and more growth — available to everyone.

 

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