JOBS ACT REMOVES SOME BARRIERS TO RAISING FUNDS

By James Forrest

Last week, President Barack Obama signed into law the Jumpstart Our Business Startups (JOBS) Act (H. R. 3606). In his words, it’s a “game-changer.” This legislation is focused on easing complicated (and often outdated) regulatory burdens on companies looking to raise money through private equity/private placement. Traditionally, in order to raise capital, businesses were required to comply with a complicated and onerous regulatory scheme – both at the federal and state level. This resulted in high costs for start-ups, including legal and filing fees. The new law seeks to open up access to capital for startup businesses.

Perhaps the most exciting component of this new era of raising capital for Triangle-area startups is the crowdfunding phenomenon. Crowdfunding has been popularized by online sites like Kickstarter. Most investments via crowdfunding are smaller and from a greater number of investors – as opposed to traditional private equity, where investments are larger and from fewer investors. In essence, ordinary Joes can now become venture capitalists! Many of our readers will recognize Kickstarter, as many area artists, musicians, and gaming/technology companies have used the site for campaigns to fund their businesses.

The new rules included in the JOBS Act may, subject to rules to be implemented by the SEC (which are still up in the air), allow an issuer to raise up to a million dollars without having to make a filing with the Securities and Exchange Commission (or state regulatory bodies). In addition, businesses engaged in private offerings may have the ability to solicit more broadly among the larger pool of potential investors rather than through the traditional friends and family network.

The new JOBS Act legislation may, depending on how the SEC rolls it out, have game-changing implications for the Triangle business community. Our entrepreneurial class, as a group, is on the leading edge of networking, technology, social media, and development of the creative sector. All of these factors give us a head start on taking advantage of legislation like the JOBS Act to continue to lift our area economy out of recession.