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In a rare act of bipartisanship, the White House and Congress were able to pass the JOBS act, which they think will spur job growth. The act lets small companies take on up to 1,000 investors (double what was allowed before).
It increases the allowable number of shareholders in community banks.
And it lets companies advertise to potential shareholders.
But the JOBS Act could have been awesome for start-ups.
But that part of the bill was obliterated by lobbyists that represented the interests of already-wealthy angel investors and the banks.
In its original form it lifted most restrictions on buying shares of a company–all the legal hoops that the SEC puts in between capital and good ideas. Like the requirement that new companies find angel investors with over $1,000,000 dollars in assets (excluding their house), or go through a major funding institution. The JOBS act was so start-up friendly it was even being called the Kickstarter bill.
Here’s the Washington Examiner’s Timothy P. Carney on what the current situation is that keeps you from selling or buying small pieces of a company:
But there’s also a regulatory barrier keeping startups and small investors apart: Under current law, only “accredited investors” — people with more than $1 million in assets (excluding home value) or $300,000 in income — are allowed to buy shares of companies sold outside the SEC’s burdensome regulatory structure. These are known as “angel investors.”
These SEC regulations have some perverse effects. Online auctioneer eBay, for instance, cannot allow you to sell “any portion of an ongoing business.” But as I write, a small-businessman in North Carolina is legally selling — on eBay — his gas station and convenience store for $1.2 million or best offer. So you don’t need SEC approval to sell 100 per cent of a business, but you’re a felon if you try selling a 99 per cent stake, or 1 per cent, without jumping through Uncle Sam’s hoops.
So the House approved a bill that was very friendly to crowd-funding. Almost all of these restrictions were amended with the hope of creating new jobs and spurring innovation.
But it got hammered in the Senate. Jeff Merkley of Oregon and Scott Brown of Massachusetts inserted an amendment to the bill that banned crowdfunding not done through intermediary platforms–managed by the SEC. That satisfied everyone who run other “intermediary” institutions in the market. Fidelity is Scott Brown’s biggest donor.
The Merkley amendment also capped even this crowdfunding at $1,000,000 – which satisfies the interests of the already approved “Angel investors.”
In fact, that was exactly the restriction favoured by Catherine Mott, chairwoman of the Board of Directors for the Angel Capital Association, who wrote an advisory letter about the legislation before it passed.
Correction: An earlier version fo this article said that the amendment capped crowdfunding at $500,000
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