When was the last time the U.S. House of Representatives voted in favor of clean energy? Or agreed with the Senate — and the President — on any legislation in recent memory? Well, the new “Jumpstart Our Business Startups” (JOBS) Act, was overwhelmingly and quickly passed by both houses and signed into law by President Obama April 5. The Securities and Exchange Commission (SEC) has 90 days to weigh in. But assuming the intent of Congress prevails, here’s what’s possible.
The new law has the potential to change the rules for raising capital for clean energy start-ups, entrepreneurs, and other small companies, defined by the law as “Emerging Growth Companies” (EGC’s). Once formalized with final SEC language – theoretically by Jul 5 — small companies will have more relaxed timing and thresholds for advertising, accounting and SEC registration.
Who can benefit
Any EGC with less than $10 million in assets, $1 billion in gross revenue and fewer than 2000 investors can now seek access to capital markets, notwithstanding the SEC 90 day window for amendments. In addition, individual investors will have access to share in the growth of these emerging companies, previously unavailable and unknown to them. Here’s Part 4 of a well-written 4 part discussion of the JOBS Act, with parts 1-3 at the bottom.
Major benefits of the law
Access to investors. The biggest advantage for ECG’s is they can now go directly to investors utilizing the internet, paid advertising and publicity. This also now permits management public appearances, seminars and media interviews. Until now, small companies could not solicit investors publicly, and had to follow traditional channels of “friends and family,” angel and venture capital investors. Depending upon final SEC language, this can dramatically change the way EGC funding is delivered. More importantly, this has the potential to make more start-ups successful, with job creation right behind.
• One Reno-based clean energy management start-up, SunScience Corporation (SSC), wasted no time contacting potential investors. A Press Release (PR) was distributed to the personal business network of SSC management as well as regional media. This same PR can also be distributed nationally via paid publicity channels. To further protect and reassure investors, SSC promises to follow many of the SEC rules required of public companies, but are not required under the JOBS Act. These include disclosure of audited accounting, qualifying accredited investors and form “D” filing with the SEC. Here’s what a local business publication had to say.
Crowd funding. Under the JOBS Act, crowdfunding (CF) sites may be now used to attract investors, however new rules for screening and financial reporting by companies and disseminating financials to investors will be more rigorous. These added steps to protect investors, some experts predict, may place an excessive burden on CF sites, keeping them out of the investment business, thus remaining in their current role.
• Currently, companies listing on CF sites (IndieGoGo, MicroVentures and SeedVo) seek contributions, donations or some form of barter. Since shares are not sold online, these CF sites are not regulated by the SEC. However, a milestone CF event just happened on Kickstarter, with Pebble watches, who raised over $8 million with a watch that is iPhone compatible. This set all records for CF fund raising. For each $100 ”donated,” the sender would receive said watch, although none have yet been made.
Elements of the law—summarized
Who benefits? Bill H.R. 3606 defines a broad class of start-ups and small businesses as “Emerging Growth Companies” (EGC’s). These entities benefit from the more relaxed regulations for a period up to five years or until they reach $1 billion in gross revenue, whichever happens sooner.
How they benefit? H .R. 2940 allows the use of advertising and publicity by EGC’s to access capital markets and solicit investors. This also includes public appearances by company executives and media interviews, all of which were previously denied small, non-public companies.
Use of “crowdfunding” (CF). H.R. 2930 enables EGC’s to use the myriad of CF sites to solicit investors for amounts up to $1 million, without registration with the SEC. Or $2 million if the EGC supplies audited financial statements. A maximum investment of $10,000 or 10% of the investors income is allowed, which is part of a larger set of measures to protect investors in this new, lesser regulated capital market.
Offer ceiling. H.R. 1070 raises the offer threshold “pool” from $5 million to $50 million from all sources, making it easier for EGC’s to go public and create jobs.
Maximum investors. H.R. 2167 raises the investor ceiling to 2000. This updates a 1964 rule stating that once a company exceeds 499 investors and $10 million in assets it must file with the SEC and go public.
So here we have two historic mileposts. New legislation to assist small businesses in gaining access to investor markets with fewer, and deferred, SEC restrictions. And, two, a historic (recently, anyway), bipartisan effort to help small businesses – the recognized engine of job creation – to grow, succeed and hire.