Liveblogging Congressional hearing on implementation of the JOBS ActBy http://profile.typepad.com/1237764140s22740 // September 13, 2012 in Crowdfunding, General Solicitation, JOBS Act
9:05 AM Pacific
TItle II of the JOBS Act is really were the action is. The Section 201(c) broker dealer exemption helps clear up ambiguities around what online portals for accredited investors can do, including providing standardized documents. This is already in effect - no rulemaking required - and potentially much angel investing will continue in this way with existing 506 standards. But wait, there's more: when the rules go into effect lifting the ban on general solicitation, angel crowdfunding will take off while Title III is still struggling for viability.
Meeting is adjourned.
8:56 AM Pacific
Ravikant says that, thanks to Rep. McHenry's amendment adding the broker dealer exemption (Section 201(c) of the JOBS Act), AngelList will be able to save entrepreneurs $5 million in the first two weeks of rollout of the new Docs product.
"And we made it free, not just for companies using AngelList, but for any company."
Rep. Pearce thinks that 18 Rabbits and other small companies should be able to advertise on Facebook. The hypothetical he gives is to the effect of, "hey, you like my product, invest $100, you might lose it but I think you won't." That is not an exact quote. Thompson says that, after implementation of the general solicitation rules, Vercruysse can do that, but can take money only from accredited investors.
There's a new Facebook ad filter for you: members who are verified accredited investors! They can be pitched on their mobiles (see yesterday's post).
8:43 AM Pacific
Rep. Canseco seems somehow to think that the verification rules in the SEC's proposal are onerous. Maybe he means they are too subjective. Oh, now he's getting to it. He is wondering if it will be a problem that those engaging in general solicitation will have a higher verification standard, than will issuers still using the old rule (with no general solicitation).
I wonder if he's read Section 201 of the JOBS Act. Congress obviously required a higher verification standard, in trade for allowing general solicitation.
The SEC's proposal is essentially to punt. Rather than spell out methods of verification, as arguably Congress asked it to do, the Commission instead basically repeated the language of Section 201 and said that the verification required will depend on the facts and circumstances of the given offering. Maybe Rep. Canseco wishes the SEC had provided safe harbors, and thinks the uncertainty over verification standards is the problem.
Rep. Maloney says that it's important for the general solicitation and verification rules to go through a comment period, and Thompson agrees. I think Thompson says that going through a comment period will help protect the integrity of the rules, if later challenged legally.
8:24 AM Pacific
A company going into crowdfunding is going to have more burdens than a company complying with 506, Ravikant says. Robert Thompson, a law professor from Georgetown, echoes that. The additional liability imposed in the equity crowdfunding legislation is fuzzy. Eakin says issuers need clear guidance on how they can protect themselves from liability under the crowdfunding exemption.
8:20 AM Pacific
Discussion now around the lifting of the ban on general solicitation, and the speed with which it is proceeding. I don't think the Committee is getting the sound bites it wants. Of course the entrepreneurs want the ban lifted and the regs implemented quickly, but no consternation about a brief comment period.
8:07 AM Pacific
More from Ravikant: Portals can help with the potential problem of fraud. By curation, portals can help investors get data. Another protection is to have sophisticated investors invest alongside crowdfunding investors on the same terms. Very interesting.
8:03 AM Pacific
"We don't want to create a situation where crowdfunding is only used by desperate companies," Ravikant says. In answering questions from Rep. McHenry, he says AngelList likes to lead with products, and AngelList will have new products in these areas as the regulations allow.
8:00 AM Pacific
Rep. McHenry tries to draw Eakin into the politics of the day by getting him to say that he, Eakin, is unhappy with the SEC for delaying the regulations to implement the lifting of the ban on general solicitation. Eakin demurs, saying that he's looking forward to regulations going into effect.
"When's the last time your lawyer did anything for free," Naval Ravikant asks. He says that AngelList Docs, just rolled out, will put $20,000 more dollars into the coffers of every new startup raising money.
He wants crowdfunding to be more viable.
Implementing regulations should make clear that curation of deals is okay and a positive thing. Kickstarter does this (curation) in non-equity crowdfunding. He emphasizes that non-accredited equity crowdfunding should work with accredited investing, making the point that a deal lead by an accredited investor or group of accredited investors can serve a good vetting function.
"It's a rare kind of accomplishment," Ravikant says of the JOBS Act, insofar as the constituency is companies that have not yet been formed, the companies of tomorrow.
7:53 AM Pacific
Twice now I've heard people say that Rep. McHenry is the author of the equity crowdfunding exemption in the JOBS Act. The witness just said it, and Rep. Bachus said it earlier. That is simply not true. It probably is the case that the Senate would never have touched crowdfunding, had not McHenry successfully led his crowdfunding bill through the House. But McHenry's bill was gutted in the Senate. Title III of the JOBS Act, the equity crowdfunding exemption (yet to be implemented; it needs implementing regulation), is the only title in the JOBS Act that is not in what the House first passed as the JOBS Act.
I think part of McHenry's frustration must be that he was quiet as his bill was being gutted, and he regrets it now, because his bill would have been much more viable than the one in the JOBS Act.
7:46 AM Pacific
Jeffry Van Winkle says verification should be worked out over time. Worried that crowdfunding "will become a dead letter, like Regulation A is today." He suggests the current setup may leave the whole province of crowdfunding to broker dealers.
Alison Bailey Vercruysse, Founder and CEO of 18 Rabbits Granola & Bars, says that starting a business should not be all about learning to how to raise capital. She speaks of frustrations of going to VCs and getting the runaround and shifting criteria, and the dead end of going to a bank. Her company was helped by federal stimulus dollars, or a loan enabled by the stimulus.
Her company used CircleUp to crowdfund.
7:38 AM Pacific
Eakin says lifting the ban on general solicitation will unleash new business activity. He also supports the SEC proposed rules.
But Rory Eakin, founder of CIrcleUp, is speaking first. CircleUp is interesting. I don't know it that well but met Rory briefly at the ACA Summit in Austin last Spring, and I know his business is - at the risk of oversimplifying - a kind of crowdfunding of angel investors. They focus on financing for consumer retail businesses. The idea, at least in part, I think, is that investors can see and touch the products, that diligence is that much more feasible in the consumer retail sector.
7:28 AM Pacific
"Comity is different from comedy," McHenry says. Not sure what that means. Rep. Bachus now introducing Raval Navikant, Founder and CEO of AngelList. "WIthout Naval's support, we probably wouldn't be here talking about implementation of the JOBS Act," Bachus says.
7:22 AM Pacific
"This kind of attack on the SEC, the kind of accusations that are being made, does not support bipartisan efforts." That may not be an exact quote, but trying to get the sense of Rep. Maxine Waters' view. She is pleased the SEC is seeking comment on the proposed rules to implement the lifting of the ban on general solicitation and on accredited investor verification.
But she is not happy with the SEC, either, apparently. I think she wants tough or more exacting verification rules.
All job growth of late is coming from small corporations, not small businesses, Rep. Spencer Bachus says. That is not normal. He is saying the JOBS Act is a bipartisan effort, of Congress, of the Administration, to change this. Says "slow moving government bureaucracy" is frustrating the fix.
7:16 AM Pacific
I'm going to try to look past the political posturing and focus on what the witnesses have to say, and what the legislators have to say that's pertinent to policy and the regulatory challenges. But you get the gist below - the legislators pick sides and bite.
7:12 AM Pacific
Rep. Darrell Issa echoes the criticism of Chair Schapiro. Accuses her of recalcitrance, turning her opposition to the policies in the JOBS Act into an effort to slow down implementation. Also takes a shot at the President, saying Rose Garden ceremonies are nice, but they ain't implementation.
7:10 AM Pacific
So this is going to be political, of course. Rep. Patrick McHenry, the author of the equity crowdfunding bill passed by one chamber but not in the JOBS Act, and author also of the broker dealer exemption that is in the JOBS Act, in Section 201, says that "the JOBS Act should be a walk in the park for the SEC" to implement, not at all like Dodd-Frank. He's criticizing SEC Chair Mary Schapiro for saying there is a backlog of regulations the Commission needs to work through, due to Dodd-Frank.
I'm going to attempt to live blog the webcast of a Congressional hearing this morning on implementation of the JOBS Act. The title is a mouthful: "Joint Hearing with the Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs of the Committee on Oversight and Government Reform entitled 'The JOBS Act: Importance of Prompt Implementation for Entrepreneurs, Capital Formation, and Job Creation.'”