JOBS Act One Year Later: Think Long-Game

4 Apr

Last year, Congress and the President worked together (collective gasp!) to pass the Jumpstart Our Business Startups Act (JOBS Act) with much fanfare. Lots of organizations were behind the push for the legislation including the Kauffman Foundation, AOL co-founder and Revolution CEO Steve Case, and the tech community. The goal of the law to was to drive support for startup funding by allowing individuals to become investors through crowdfunding platforms and foster small business growth by easing federal regulations for IPOs. Kudos to Congress and the White House for being somewhat up on the innovation and new ways of doing business in the tech space. However, the promises of the bill have failed to meet lofty expectations of many.

One-year later, the herd of IPOs from fresh, new startups have yet to appear, crowdfunding rules have failed to be finalized by the Securities and Exchange Commission (SEC), many funding platforms are jumping through regulatory hoops, and some are wondering what the hoopla was all about. Since enacting the law, IPOs of companies aided by the legislation are likely to fall 21%, from 80 to 63 in 2012, according to Jay Ritter, University of Florida professor who tracks IPOs. House Republicans have chastised the SEC for failing to move forward on quickly on rules. So, what gives?

The SEC has taken a very cautious approach to promulgating regulations that will govern very recent financial innovation. Pressure from the business community, consumer groups, and others have made it imperative that the rules work best for entrepreneurs while ensuring the provisions protect investors. Delays in the rulemaking process are also hampered by the nature of the new, innovative financial platforms. These rules will be the first ones to govern this type of financial activity. As a result, the Commission has solicited public comments and input from crowdfunding platforms such as Indiegogo, Rockethub, and Kickstarter.  The departure of former SEC Commissioner Mary Shapiro and three of her top deputies has also put significant strain on the rulemaking process. Crowdfunding businesses aren’t holding their breath for finalized rules in 2013, but remain optimistic.

Most legislative agendas put forth on Capitol Hill are almost always anointed as a “job-creating” measure. The JOBS Act may certainly bring forth many new employment opportunities and companies down the line, but it’s far from a panacea to our unemployment woes. The expectations of policymakers was that the IPO Fairy was going to leave hundreds of new public companies and lots of new jobs under their pillows as soon as the legislation was signed. Sorry folks, it wasn’t going to happen overnight. Good start-ups don’t necessarily have trouble raising capital from private investors and many of them would rather not go public. Public policies can create incentives for firms in the marketplace, but they are rarely the impetus in altering behavior.

The push behind the JOBS Act was for the benefit of the economy and does have potential benefits over the long-run. The relaxing of requirements for going public has its positives and has encouraged some businesses to take advantage. The market will be open for small investors that are willing to take on the risk of investing in a start-up, and be rewarded. The small businesses and entrepreneurs that have great ideas, but not the home runs required for venture capital/angel funding will be the primary beneficiaries. The playing field will be leveled for investing in companies across the country, not just the start-up hubs of Silicon Valley.

Sure, the expectations of the JOBS Act were overstated and slightly unreasonable a year after its enactment. It might be difficult for policymakers to focus on the long-game of legislative measures, but that’s how the merits of the law need to be re-framed. The JOBS Act’s significance are its long-term benefits and the public policy measures taken to usher in an innovative financial model for entrepreneurs. Let’s at least give them some credit for that.

 

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