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JOBS Bill Serves as Catalyst for Technology Growth

Image Credit: Art57

After the dot-com bubble burst in 2000, strict regulations were imposed on startups and smaller companies by the Securities and Exchange Commission, limiting their access to capital and information that could be provided to their investors.  These tighter regulations limited the ability of companies focused on innovation to successfully scale up quickly.  The Jumpstart Our Business Startups (JOBS) Act, which passed last Thursday by an overwhelming majority vote of 390-23 in the House, eases rules that have limited these smaller companies growth.

The goal of this legislation — aimed at creating jobs — has managed to gain uncharacteristic bipartisan support from legislators, and is moving to the Senate for approval, with support from the White House.  The challenge to create a bill that aids entrepreneurs came from President Obama, during his recent State of the Union Address.  This bill delivers on that request.  The package of six bills, sponsored by Republican Rep. Stephen Fincher of Tennessee aims to do just that, by removing restrictions on crowd funding, providing temporary reprieve from SEC regulations, and removing restrictions that prevent small businesses from utilizing social networks to solicit investors.  Fincher commented, “Reducing these regulations will help small companies raise capital, grow their business and create private jobs for Americans.”

Specific regulatory changes in this legislation include an increase in the maximum limit of shareholders from 500 to 1,000, that would require a private company to completely disclose its financials to the SEC, just like a public company.  This particular regulation has been a significant factor in the impending Facebook IPO later this year.  If this bill had been enacted last year, Facebook may not be going public. With over 500 investors, going public is more beneficial than just handing over their financial information to the SEC.  Also, any individual giving $10,000 or less will not count towards that maximum number of shareholders.  The offering threshold was also increased from $5M to $50M, before requiring registration with the SEC.  Companies selling less than $700M in stock would only be required to provide investors with two years of audited financial results before they go public, instead of three years.

These regulatory changes could spark a resurgence of IPO’s in the technology sector, starting this year with companies like Tumblr and Dropbox, who are considering a potential IPO.  The tech sector as a whole has rebounded significantly over the past two quarters, and this legislation will only help sustain the solid growth we’ve already seen this year.  The creation of jobs through the bipartisan support of these bills merits lawmakers a pat on the back, but facilitating support for small companies committed to innovation through deregulation warrants a hearty handshake, and maybe even a few votes.