While in recent years Democrats and Republicans have found many things to argue about, and few to agree on, in April of 2012 they came together to pass the Jumpstart Our Business Startups Act (JOBS Act).
I was proud to stand in the Rose Garden on a sunny afternoon with President Obama, former Majority Leader Eric Cantor, members of Congress from both sides of the aisle, and dozens of entrepreneurs as the JOBS Act was signed into law.
Today, the SEC finalized the signature component of that legislation – crowdfunding rules for non-accredited investors under Title III. These new rules update securities laws that were put in place in 1933. (That was more than 80 years ago, before the concept of venture capital emerged, or the Internet was invented!) The old rules in essence prohibited people who weren’t already wealthy from investing in startups.
The intent was honorable – to protect people from losing money – but it also deprived them of the opportunity to make money, and, in so doing, effectively resulted in the rich getting richer.
Worse, it deprived entrepreneurs with great ideas who lack money, or access to money, the opportunity to pursue their dreams. If you were born wealthy, or had friends with money, or had gone to the “right” schools or lived in the “right” neighborhoods you had a real shot – but if you didn’t, all too often you would be left behind. This has made it much more difficult for women, people of color, and people living outside all but a handful of cities to have the opportunity to launch a startup.
Women represent half the population of our country, but get less than 10% of venture capital. And people of color fare even worse – a paltry 1% of venture-backed entrepreneurs are African American, for example.
And raising money has been difficult for entrepreneurs not based in California, New York and Massachusetts. Amazingly, 75% of venture capital last year went to those three states. The other 47 states fought over the other 25%. There are great startups being formed in Silicon Valley, New York City and Boston – and that will continue. But there are also great startups in the rest of the country, and they deserve a shot, as well. I’ve seen that firsthand as I’ve visited 19 cities in the past year and a half on our Rise Of The Rest tours. The entrepreneurs I’ve met in places like Detroit, Nashville, Madison, Kansas City, Buffalo, and New Orleans are cheering the crowdfunding rules, as they now have a better shot at turning their ideas into companies.
The rules the SEC announced today will – finally – help level the playing field. The rules are three years late, imperfect, and will surely require modifications over time. For instance, while the final rules include disclosure requirements that are smarter and less onerous than those in earlier drafts, more can be done to reduce burdensome obligations on young companies – especially those doing low-volume raises. But that notwithstanding, the new SEC rules represent a significant step forward for the country’s innovation economy.
Since it was signed into law three years ago, the JOBS Act is beginning to have a positive impact. More startups are starting, more speedups are scaling, and more jobs are being created. The provisions that went into place at the outset, such as the IPO on ramp, has helped rekindle public offerings for emerging growth companies. Rules put in place earlier by the SEC, including General Solicitation and Regulation A+, have made it easier for entrepreneurs to use the Internet to raise awareness and capital. Thousands of startups have already benefited from these JOBS Act provisions.
The men and women who worked to pass the JOBS Act should feel proud today. They put aside partisan politics and focused on taking a step to ensure America remains the most innovative and entrepreneurial nation in the world. The startup community is grateful for their leadership. Hopefully they will now turn their attention to other issues that need bipartisan legislation, including immigration reform, so our country can win what is now a global battle for talent.
Let’s keep moving forward and giving more entrepreneurs – in more communities across the country – a fair shot at realizing the American Dream.