The House recently passed the Jumpstart Our Business Startups (JOBS) Act, with bipartisan support. A similar bill will soon be under consideration by the Senate, and The President has signaled his support for it. So provided everyone can agree and it becomes law, what does the JOBS Act mean for your small business?
While expert opinions as to potential effectiveness always vary, the JOBS Act is designed to make it easier for small businesses to raise money during their growth stage, and to make it simpler and less expensive for businesses to go public via an IPO. So, if you’re a small business owner looking to expand or go public, the JOBS Act may make your goals easier to achieve.
The JOBS Act is actually a package of 6 separately proposed bills, each attempting to alleviate different small business growth obstacles. For example, one key component of the act would ease regulatory requirements (most notably those required by Sarbanes- Oxley) for small businesses at the start of the IPO process, and phase them in over 5 years. The government estimates that the average cost to go public is $2.5 million, and the annual cost to stay public is $1.5 million. By easing regulatory requirements, the act aims to make IPOs more accessible and affordable.
Another key component is enabling small businesses to raise up to $1 million in capital (with individual investments capped at $10,000 per investor) via crowdfunding without providing investors with audited financial statements. This provision is designed to not only make access to capital (which is currently often limited to venture capital firms and very wealthy angel investors) easier for small businesses, but also to make highly profitable (and highly risky) start-up business investments available to small investors.
Why make this type of change? The goal is to create jobs. Government research shows that from 1980 to 2005 firms less than five years old accounted for all net U.S. job growth, and that on average 92% of a company’s job growth occurs after an IPO. It also notes that IPOs for small companies create more jobs than larger ones, and that IPOs for small companies have recently fallen significantly. Thus, the JOBS Act is designed to make it easier to raise money leading up to an IPO, and easier and less expensive to complete the IPO, thereby spurring job creation from high-growth small businesses.
You can read more about the JOBS Act, and the six bills that comprise it in this government press release.
For an in depth overview and discussion of pros and cons, read this article from CNNMoney.
And if you want to digest it all first hand, you can read the JOBS Act itself here.