What Does the JOBS Act mean for Small Businesses Looking to Raise Capital?

The JOBS (Jumpstart our Business Startups) Act was signed into law on April 5 by President Obama and aimed at increasing the ability of small businesses to access capital and create jobs. In this and subsequent posts, I will monitor the opinions of legal experts, consultants, financial  advisors and compliance guidelines from the Securities and Exchange Commission (SEC) to help determine how small business owners may be able to take advantage this new legislation and report back periodically on what I learn. My hope is that many small business owners can gain access to much needed capital to expand their businesses and create jobs to improve our economy.

Since the legislation was signed into law I’ve read numerous legal opinions from attorneys at Morrison & Forester and Seyforth Shaw along with several other posts from my peer group of consultants and financial advisors. Here’s what they all seem to say in common at this point:

1. It will now be easier for small businesses to raise capital. The Act defines small businesses as “Emerging Growth Companies” (EGC} with less than 1 billion in revenue, which applies to most small business owners I work with. The law provides temporary relief from the SEC from certain regulatory reporting requirements, making it easier, less expensive and more feasible to go public.
2. The Act makes it easier to sell stock to private investors in addition to venture capital groups. The Act removes an SEC regulatory ban stating that businesses cannot use advertisements to attract investors to a non-public offering, which has made it difficult in the past to keep communications about a private offering under wraps.
3. Small businesses will have a new way of raising money through “crowdsourcing”. The Act allows business owners to sell equity to anyone with the cash and interest through web based “crowdfunding” portals which provide platforms to connect businesses with individual and group investors. Previously, crowdsourcing was limited primarily to artists or small business owners accepting small donations in exchange for bags and CD’s. Also, the new law states that you don’t have to be a really rich person (an accredited investor) to invest in a small business, which in itself creates a new set of risks and rewards to companies interested in obtaining this type of funding.

The SEC has 270 days from April 5 to come up with a new regulatory framework allowing businesses to sell company equity on crowdsourcing platforms. That means you have until about Thanksgiving to get ready to compete for new crowdfunding sources of capital.

I expect that small business owners with solid customer value propositions, well-articulated business plans and clear evidence that new capital can be put to work effectively will be the early benefactors of the Act. Audited financials, explanation of the risks associated with equity investment and a plan that anticipates future capital rounds will be also be pre-requisites to success for those businesses hoping to cash into cash in on this new equity source. Now is the time to begin thinking about how your business can benefit from the JOBS Act.

If you would like to share your perspectives on how to better prepare for the JOBS Act, please post your comments or contact me directly. Let’s figure out how to take advantage of this enticing opportunity to grow new businesses by helping them gain access to the capital they need!

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