The Jumpstart Our Business Startups (JOBS) Act cleared its final legislative hurdle today. It is now on its way to President Obama for signature.
The JOBS Act is a big deal for those seeking capital for starting and growing companies. Joe Bartlett, who chairs the advisory council to the public policy committee of the Angel Capital Association, said at the ACA Summit in Austin earlier this month that the JOBS Act represents the biggest set of changes to securities laws in fifty years.
But you may have noticed that different articles about the JOBS Act emphasize different things. It’s about the IPO on-ramp; or it’s about digital rules for angel investing, long overdue; or it’s about equity crowdfunding.
The balkanized coverage is a reflection of the mashed-up nature of the Act itself, which, for political reasons, “packaged” disparate, individual bills, each intended for a different purpose or audience.
One way to make sense of the JOBS Act holistically is to think of it as having three main audiences: (1) VCs and serial entrepreneurs; (2) angels, angel groups and incubators; and (3) grass-roots entrepreneurs wanting to move crowdfunding into equity financing. Here’s a quick take on which provisions of the JOBS Act are most important to each audience:
- VCs and serial entrepreneurs who can project taking their companies public are focused on Title I of the JOBS Act, the IPO on-ramp provisions, reforms that will delay some of the requirements imposed on companies after they go public. This initiative was successfully lobbied for by the National Venture Capital Association. Earlier here in GeekWire, John Cook wrote about how the VC campaign to un-clog the IPO pipeline had the support of many prominent startup entrepreneurs.
- Angels and angel groups are focused on the lifting of the prohibition on general solicitation in Reg D Rule 506 offerings that are limited to accredited investors. Complementing this reform is a new safe harbor to federal broker-dealer registration requirements, which will let angels socialize deals online, and make it easier for startups to pitch at angel and incubator events. These angel- and incubator-oriented provisions are in Title II of the JOBS Act.
- Crowdfunding advocates – who by and large are ecstatic that their grassroots campaign to open up startup and small business investing to everyone has succeeded in generating an exemption – are keyed entirely on Title III of the JOBS Act. If you follow my crowdfunding posts on wac6.com, you know I have been fiercely negative about what the Senate did to the original McHenry crowdfunding bill. But advocates are showing pluck by calmly sorting through the upcoming regulatory complexity of the new exemption.
At the beginning of this month, I posed questions in a guest post here on GeekWire about how angel financing and equity crowdfunding might co-exist: would deals overlap; would one kind of deal naturally follow the other; would crowdfunded deals and angel financed deals be mutually exclusive?
No one can really know for sure how things will play out, but I predict that the changes made in the Senate to crowdfunding will make crowdfunding and angel financing mutually exclusive. It’s a bit ironic, but Title II of HR 3606 in many ways puts true crowdfunding behind the accredited investor gate, while giving non-accrediteds a new kind of limited offering registration as an alternative to the others (little used) already out there.
Does my theme of “three audiences” capture all of the provisions in the JOBS Act important to startups and growth companies? No! I’ve left out Title IV, reforms to Reg A, one of those little used alternatives for financings mentioned above. Reg A may prove to become more viable for emerging company offerings. I’ve also left out Title V, the change to permit private companies to have up to 2,000 investors before triggering SEC reporting. This latter provision, advocated by secondary markets for private shares, might be said to be of import to two audiences, VCs and angels.
There are some good blogs keeping up with the JOBS Act. If you want the legal nitty gritty as it happens, Jim Hamilton’s blog has the details. In a similar category, but served with geeky analytical panache, try Doug Cornelius’ blog. As always, of course, the very best discussion is on Fred Wilson’s blog.
Attorney William Carleton is a member of McNaul Ebel Nawrot & Helgren PLLC, a Seattle law firm. He works with startups and emerging tech companies, their founders and investors. He posts regularly about tech-related legal issues on his blog.
[Angel funding image via Bigstock]