The JOBS Act is an extremely important piece of legislation to understand, as it will have some major effects on the financial industry. Specfically, the JOBS Act will change how companies can raise money, and who they can raise money from. It will facilitate private capital raising, as well as easing regulation on small companies’ public offerings. The Act also addresses crowdfunding, which will allow non-accredited investors to gain access to private companies.
Q. The JOBS Act—What is it?
A. Really pretty revolutionary bill that looks nearly certain to become law soon. It will make raising capital without an IPO radically easier, and make going public itself much simpler for smaller companies. It will change the landscape very meaningfully.
Q. It’s really a combination of several different bills, and some ideas about regulatory reform, that have been out there for some time, right?
A. Yes, a lot of different initiatives have been rolled up into this thing. Some deal with the private placement rules—how nonpublic securities are sold; some deal with greatly expanding the rules concerning which companies can go public in a sort of easy, starter form, called Regulation A; some deal with the onerous reporting many small companies face as public vehicles; and some deal with crowdfunding for startups and the broker dealer rules.
Q. That’s a lot of things at once! The fact that Congress can agree on something new these days shows how important they think new capital formation is for creating jobs. But there’s some pushback from some quarters, right?
A. Some people think that the rules are going too far and eroding investor protections. For example, on the crowdfunding issue, the bill will allow for the sale of securities to small investors without the need for registration of the securities or even the intermediation of a BD— many argue that will lead to lots of fraud. The crowdfunding advocates say no, the internet allows all sorts of ways of reputation checking—think about Amazon seller ratings—that will be protection enough. Interesting debate.
Q. Obviously with so many changes suggested at once, its hard to sort out all the potential consequences. But which of these changes do you think is most important long run?
A. Obviously hard to say, but I think the liberalization of the Regulation A “starter” IPO rules is needed and important. These changes are being combined with a “on ramp” system that for complying with all sorts of pretty onerous requirements, like SOX: as the company grows, it’ll have greater and more stringent reporting requirements. Making the path to developed capital markets more tolerable has got to be good for the economy, and I’m personally very happy to see that happen.