The Three Audiences of the JOBS Act

Today the House is expected to "concur in the Senate Amendment to H.R. 3606." After that happens, the Jumpstart Our Business Startups (JOBS) Act will go to President Obama, who is expected to sign it.

Three ring circus

As you know, the JOBS Act has been the focus of this blog this month. The JOBS Act is a big deal for entrepreneurs, startups, angel investors, venture capitalists, and would-be equity crowdfunders. 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 Act represents the biggest set of changes to securities laws in over twenty years.

Debriefing will continue for some time. The SEC will have to engage in rulemaking that for some provisions will, and for other provisions may, make or break the intended reform.

You might note how different audiences are receiving and talking about the JOBS Act. There are three discernable audiences:

  • 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.
  • VCs and serial entrepreneurs who can project taking their companies public are focused on the IPO on-ramp provisions, reforms that will delay some of the requirements imposed on companies after they go public. This initiative was lobbied for by the National Venture Capital Association. In GeekWire, John Cook wrote about how the VC lobying effort had the support of many prominent startup entrepreneurs.
  • Crowdfunding advocates, most of them, are ecstatic that a law has been made which would allow equity to be crowdfunded, with participation in such deals being open to everyone. I feel bad that I have been so negative about what the Senate did to the McHenry crowdfunding bill. Paul Spinrad, a huge leader in the equity crowdfunding movement and, in my opinion, the one who best articulates the rationale for equity crowdfunding, posted a remarkably objective assessment yesterday. 

At the beginning of this month, I posed questions in this GeekWire guest post 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, of course, but I would say 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.

As always, the best discussion of the implications of the JOBS Act is on Fred Wilson's blog. With regard to crowdfunding, Fred says to remember that a step in the right direction has been taken. I'm going to keep reminding myself to stay positive.

Photo: Three Ring Circus by scilina georgia / Flickr.

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