president obama
JOBS Act

Ready, Set, Crowdfund: President Obama To Sign JOBS Act Tomorrow

Next Story

MindMixer Raises $1.9M For Virtual Town Halls, Launches ImproveSF Website

On March 22nd, a slightly modified “Jumpstart Our Business Startups (or JOBS) Act” was approved by the Senate in a 73-26 vote. Last week, the House of Representatives, too, showed its support for the bill, giving it the green light in its own 380 to 41 vote. Tomorrow, President Obama is expected to officially sign the bill into law (from what we’re hearing, that could be as early as 11am PT), representing the final step for legislation that will, among other things, legalize crowdfunding in startups by non-accredited investors. In other words, now even your mom can invest in your startup.

In early March, U.S. Senators Scott Brown (R-Mass.), Jeff Merkley (D-Oreg.), and Michael Bennet (D-Colo.) collectively introduced the “CROWDFUND Act” (S. 2190), which added measures to the JOBS Act to enable startups and SMBs to use SEC-approved crowdfunding portals to raise money from anyone and everyone. The new, amended version of the bill to be signed tomorrow stipulates that entrepreneurs can raise up to $1 million per year through those approved channels, and seeks to limit potential financial damage to inexperienced investors by limiting the amount of money your or I can invest, based on income.

Investors with incomes of less than $100K will be limited to 5 percent, or $2K, investments, while those who make over $100K/year will be limited at 10 percent, or $10K. Among other things, the bill requires crowdfunding sites to provide further consumer protection, i.e. provide educational materials, which inform people of the risks inherent to the process.

Another notable measure: The legislation does away with the 500-shareholder rule, which put a cap on the amount of shareholders a company was allowed before having to register with the SEC. Under the JOBS Act, companies now have a longer grace period before being required to report financial data, are able to sell up to $50 million in shares, and are now allowed as many as 1K shareholders before starting the process of going public.

The JOBS Act has received bipartisan support across the board on its way to Obama’s desk, as it is expected to provide entrepreneurs with quicker access to capital to grow their businesses, and create jobs. It certainly does bring significant change to the investment process, and could bring a new level of transparency — if not public participation — to funding small businesses. For the country at large, the passage of this bill is all about job creation, and on that level, is being celebrated.

Of course, that doesn’t mean the legislation is without critics, as some argue that it removes too many of the protections that have been put in place for non-experienced investors, and as Aaron Ross Sorkin says, may create more Groupons. On the other hand, it may not be the SEC’s job to protect people from making bad decisions on their own, but, better yet, protect them in the event of fraud, which the Web certainly has in spades.

The bill may indeed succeed in giving companies an on-ramp to IPO, and actually revitalize an IPO market that some would argue has been hamstrung by regulation. That being said, it puts a lot of pressure on the crowdfunding market to self-regulate, which will be essential to the long-term viability of this brave new world of investing. In the end, it looks like a victory, but it will no doubt be a bumpy road at the outset.

Want to keep tabs on the signing? Check in with the President’s schedule here.