Ten Years Later: Pros and Cons of the JOBS Act
When the global financial crisis hit in 2008, small businesses were among the hardest hit. In response, Congress enacted the Jumpstart Our Business Startups (JOBS) Act in 2012. As the first step in relieving some of the burden of securities regulation, the JOBS Act aims to make access to capital easier for startups.
The JOBS Act removed regulatory barriers for entrepreneurs by allowing them to directly solicit funds from thousands of potential investors. Previously, it could take months to reach a comparatively tiny targeted audience, but the new law makes it easier for startups to market their ideas and raise seed capital, making it easier for them to grow and put more Americans back to work.
Before the JOBS Act, many startups initially relied on savings from friends and family, and banks funded most of their subsequent growth. Unfortunately, the worldwide paralysis of financial capital left many people with little or no savings and forced many small-community banks out of business. The JOBS Act changed that, and many smaller companies can now raise capital without the burden of compliance with Sarbanes-Oxley Act reporting requirements. This spike in small-business activity in turn spurred an increase in the number of initial public offerings (IPOs) and laid a new baseline for economic growth during the country’s crucial time of recovery.
The biggest advantage, in our view, is that it allowed small investors to participate in equity crowdfunding. Previously, only those with $200,000 of net worth would qualify for such an opportunity. Now, the increased cap on accredited investors removes the barrier to entry for many small investors. It has also created the environment for companies like KiwiTech to help small businesses reach the investors who are best positioned to help these startups thirve.
Critics of the JOBS Act have argued that it makes it too easy for companies to go public without sufficient transparency. They also worry that the relaxed regulations will lead to more fraud and abuse. While we have seen some examples of this activity, we’re confident that legislation and oversight are catching up and leveling the playing field. And at KiwiTech, part of our job is to keep all the participants in equity crowdfunding aware of this industry’s constant flux and ultimately building a community of educated investors who can benefit financially from their research and instincts.
Back in 2012, few could have anticipated the widespread ripple effect the JOBS Act would have on the global economy. And ten years later, we feel we’re still only at the beginning of an era when a wider spectrum of investors is helping nurture one of the most entrepreneurial and creative times in history.