In the never-ending discussion of putting the economy back on track in America, The JOBS Act is now a piece of the rhetoric. The request by President Obama in his State of the Union address to the House has produced what they say is a package that puts together what is needed for small businesses and entrepreneurs to succeed financially. This act proposes to help start-ups grow, create jobs and put the flagging economy back together. So, what are the high points of the JOBS Act- and will it help YOUR small business?
Venture capital was long considered a prime way to finance a small business. It has become the vehicle, however, for Silicon Valley and other tech wizards to get off the ground, with most other small businesses failing to secure the funds they need through venture capital. The JOBS Act proposes to solve that problem by allowing startups to solicit funds online, so that average income earners can invest in small businesses. Crowdfunding, although controversial, is here to stay. By eliminating the need for complying with the SEC’s complex regulatory structure and fees for receiving funds from investors, at least until you raise $50 million dollars.
The crowdfunding system would allow investors to put in up to $10,000 each or 10% of their income, whichever is less. There are fraud and background checks that entrepreneurs need to pass in order to try and protect investors against fraud. Investors would also need to pass a quiz to prove they understand the risks of investing in the startup.
Industry best practices will be followed to reduce time and try to maintain transparency for everyone. Another protection in the crowdfunding idea is that social media will actually be used to keep everyone honest and transparent. Entrepreneurs would use their social media networks to solicit contributors, where deal rooms would be used to allow investors to dig deep into the entrepreneur’s ideas, business model and opportunity to invest. The idea is no money would change hands until all the investors agree to fund the idea and 100% of the funding has been met.
While crowdfunding is just one part of the new JOBS Act, it is perhaps one of the most controversial. Many wonder if it is truly possible to vet a investment opportunity carefully enough to avoid great losses for the average investor. It may be the best idea to come out of Congress in a long time – or it may be a bust. What do you think? Can the JOBS Act help your small business get off the ground?