Our elected officials and regulatory bodies are doing an excellent job of helping mid to large size companies raise money. However, they’re leaving small business in the lurch.
The Jumpstart Our Business Startups (JOBS) Act, passed with bipartisan support in March of 2012, opens the doors for small businesses to raise funds by selling stock in their small organizations, without having to jump through all the hoops of an SEC filing. It opens the doors to crowd funding, similar to Kickstarter projects, but where the pledges go toward actual ownership in the company instead of a future product pre-order. This could be a potential game changer for small businesses.
I’ve been working at Lendio now for just a little over a month, and I’m continually impressed at how the full team here is truly working to “fuel the American dream.” Helping small businesses get financing is our main priority. As such, we were excited to see the JOBS Act pass. However, this was back in March of 2012. It’s now more than two years later, and the most important parts of the bill still aren’t implemented.
So, what’s the hold up?
There are 5 main parts (titles) to the bill. About 3.5 of these have been implemented. The pieces that have been implemented allow businesses to more easily prep for an IPO, more freely advertise that they’re raising money, and have a greater number of shareholders under a simple structure. These sections are great for mid size to large size businesses. However, they still leave small businesses and startups behind.
The main provision, title 3 of the bill, would allow businesses to raise capital by selling ownership in the company to “unaccredited investors.” A simplified explanation of an accredited investor is someone with a net worth of $1 million. Thus, most Americans fall into the “unaccredited investors” categorization. While businesses can raise funds by selling shares to accredited investors, they can’t offer their shares to the vast majority of Americans.
Related Article: Summary of JOBS Act Title 3
The poor implementation of the JOBS Act hurts small business:
- Small businesses, who drive a significant portion of the economy, don’t have the same benefits of mid to large businesses: well organized financial departments, in-house legal representation, and lots of money.
- Small businesses are so busy keeping their doors open that they can’t spend the time they need to learn all about the JOBS act and the intricacies of raising funds under it’s currently limited implementation.
- Small businesses need to be able to raise funds by selling shares to their neighbors, friends and family. They need to be empowered to reach out to the masses, via social media, and allow the masses to contribute to the success of that business. The masses can’t buy in though – they’re not accredited.
Small businesses and startups are not being helped by the JOBS Act. On the contrary, they’re being hurt by it. As medium and large businesses continue to benefit from this act they’re given an edge over small businesses. A few questions to ponder:
- Is the government pandering to lobbyists from medium and large businesses?
- Is the government purposely trying to stand in the way of small business financing?
- Or, is the government trying to protect uneducated investors by not allowing them to purchase shares from unscrupulous small businesses?
- When is the JOBS Act going to be implemented?
If you feel like you’re at a level of sophistication with your small business you can always take a look at EquityNet – they’ve got an excellent platform for mid to large businesses to raise funds. You can also submit a quick profile with Lendio to see if we have any lenders to get you business financing.