Zaarly co-founder Eric Koester, the Seattle startup attorney-turned-entrepreneur, testified in front of the House Committee on Oversight and Government Reform on Tuesday. Despite Chairman Darrell Issa botching Zaarly’s name, Koester laid out four items which he believes needs to happen in order to help spark more entrepreneurial energy in the U.S. (Private Company Financing Regulations, Private Market Regulations, Exploring Alternative Funding Arrangements, and Immigration Reform).
“The most important lesson learned from entrepreneurs today is that removing friction — friction in business, friction in commerce, friction in human capital and — important to this committee today — regulatory friction is crucial for these businesses to do more with less,” said Koester.
Koester’s prepared remarks start in minute six of the video below, and he also answered a question about the importance of access to capital in minute 41. He said:
“It is the difference between a nice side business that supports your family, and a business that really contributes in a dramatic way to the U.S. economy. The business that we have started, Zaarly, is a business that that we hope will have a dramatic impact on markets, person-to-person commerce and hopefully have an impact on unemployment, but that’s only accessible to us because of the fact that we had forward-thinking investors to put capital in early and efficiently. That allowed us to run very quickly to the point where we took a business from an idea to, 12 weeks later, launching a very large-scale business.”
What followed from that was an interesting discussion about why investors and employees need to reach liquidity earlier in the company formation process, with Koester noting that a lack of liquidity in the IPO markets has a “downstream effect” on venture capital investing as well. The panel then debated the 500 shareholder cap, and why it should be lifted.
Former SEC commissioner Roel Campos also offered some general remarks on financial reform.
“Essentially, what we need today in my humble view, is a market that operates in a way that doesn’t mystify, worry, perplex investors,” said Campos, adding that the SEC has not kept up with the times and is now an “agency of lawyers.”
In minute 50, former investment banker and Tennessee congressman Jim Cooper noted that “financial literacy” has not increased over the years and that IPOs don’t always work out.
“Another problem is that many retail investors have the idea that all IPOs are automatically good. Many of them are disasters, many of them are a search for the dumbest dollars they can find in America, overly valuing a company and leaving the poor retail investor holding the bag perhaps who has been seduced by an overly optimistic analyst report.”