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Life Is About To Change For Entrepreneurs

March 16, 2012

If you are following the JOBS bill, you know that big news is brewing that could rock New Market Entrepreneurs’ worlds.  If the bill passes the Senate in its current format, raising money is about to become much easier and efficient for legitimate entrepreneurs.  It will be a game-changer.

Below is a chart published by secondmarket.com that shows where this new funding source fits and to whom it applies.

In the last 24 hours we tweeted two pieces that do a great job of painting the exciting picture of possibilities this bill opens while also debunking some of the negativity surrounding this bill.  Let’s take a look–

Remember that special moment when we all realized that the Web was going to remake yard sales and auctions, but we didn’t know yet who was going to win? (And then eBay left the rest in the dust?)

Such a moment has come again, and with a choice prize: Investing in start-ups. The House has already passed crowdfunding legislation, by a whopping majority. The president supports it. Senators on both sides of the aisle (Merkley, Bennet, and Brown) have agreed on a version. Entrepreneurs are signing petitions to support it. And there is speculation that the Senate Majority Leader Harry Reid may push for passage of the House bill as-is. This could be law overnight.

What would this mean? It would mean start-ups can “go public” from the get-go. Fasten your seatbelts. This is Kickstarter on jet fuel. Under the House rules, any start-up can publicly announce that it’s raising capital (on Facebook, or even in the local paper), and can raise up to $1M each year. That’s enough for lean start-ups to go many times around the track. Individual investors can invest up to 10 percent of their income. And there is very little paperwork required.

Everybody likes the innovation and jobs that this could propel. Detractors are understandably concerned about fraud.

Read more from this post about why fraud will be a non-issue and how there will be a new race to become the ebay of this space!

Then we saw scathing articles in the NYTimes here and here (and in many other places) predicting how this bill will bring on a new wave of fraud.  Soon thereafter, we were happy to enjoy knock-out blow retort from Bill Sahlman’s How the NY Times Got the JOBS Act Wrong who happens to be one of the most inspiring teachers I have ever had.  He’s still got it…  here are some key passages.

To lump the dot-com era in with Enron and the mortgage crisis is patently absurd, and dangerous. The distinguishing feature of the American economy that makes entrepreneurship possible is our tolerance for failure. Smart people constantly scan the environment for opportunities; they can get other people to join them; they can raise capital; they can adapt as new information comes in; they can sell their business; and, yes, they can fail. As long as they don’t lie, cheat, or steal, they are considered experienced, not fatally flawed. Oh, and the investors can lose money, too, which professional venture capitalists do in over 50 percent of the investments they make.

Now imagine a world in which we preclude anyone from making an investment in which they might lose money. Or, imagine a world in which we legislate that accountants double-check every transaction in every company. Or, imagine that we put in place draconian penalties for all errors, after-the-fact, intentional, or unintentional. That’s a world in which FedEx, Apple, Intel, Genentech, and Facebook, just to name a few prominent American success stories, wouldn’t exist. Neither would Wal-Mart or IBM.

Of course, this “It’s a wonderful life” vignette, in which the unintended consequences of decisions are disastrous, is as unlikely to occur as the “mass job destruction” the author foretells in his editorial. We need regulation just as we need laws. We also need common sense. The JOBS Act does not dismantle existing regulation. Instead, it is based on the premise that the benefits of having more new companies formed and able to go public outweighs the potential costs of bad behavior. History suggests that fraud in newly public companies is not a problem, which makes sense given the intense vetting process by lawyers, accountants, the SEC, underwriters, and investors.

When you lower the cost of doing something, more of it gets done. That’s simple economics, and that’s the thrust of the JOBS Act. The other caustic comments by the author also reflect a lack of understanding about the actual provisions in the ACT. There are safeguards against unscrupulous people taking advantage of unsophisticated investors. Again, if we take the author’s argument to its illogical conclusion, and try to keep everyone safe from everything, then the economy will crash and the inevitable result will indeed be mass joblessness.

We desperately need more entrepreneurial ventures in this economy. We need more capital allocated to this part of the economy. By implication, we need more failure. We also need common sense assessments of the benefits and costs of regulation. And, as the comment about the Madoff and Enron suggest, we need common sense and competence in our regulators and regulatory framework. Of course, we also need organizations like the New York Times to be more thoughtful about presenting a balanced view of any new legislation, not one that dogmatically asserts that all deregulation is bad and all existing regulation accomplishes some important goal.

Read more, you will be glad you did

Note Bill’s emphasis on acceptance of failure in our culture as one of our sustainable competitive advantages… a theme we blog about often.

Entrepreneurs and Early-stage investors everywhere should be proud of what is about to happen in Washington… Something is about to get done (which should also make us proud) that will rock our worlds!

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2 Comments leave one →
  1. April 6, 2012 10:45 pm

    I’m glad I missed that NY Times article, and even happier to read Bill Sahlman’s take (which is how I stumbled across your blog). I have been trying to raise $2 million to fuel up a better, hipper version of LinkedIn for women professionals worldwide for several months. With few exceptions everyone I know who is fundraising – from women creating organic food products, new wine and online businesses, to men in a variety of tech companies – all of us are struggling to attract the right investors. While I’ve met some folks who have managed to raise their first, second and even third rounds – from $50,000 to $850,000 in one case – most of us are juggling multiple jobs to pay the bills and self-fund small groups of PT / independent contractors. Not a very good (or fast) way to grow or gain traction.

    Our collective hope is that these bills will give us a chance to scale, to prove our mettle, and the strength and validity of our ideas as viable – as well as create seriously profitable companies.

    And while I’m sure there will be a few rotten apples, the new CROWDFUND and Entrepreneur’s Access to Capital Acts will allow thousands of entrepreneurs like me to get a little from many. What is equally as important – once the logistics, rules etc. are settled and we can start raising funds in exchange for equity for every investor – all of us will be creating multiple jobs all around the country. I’m planning on hiring at least 4 full-time people, plus 3 part timers – I can’t wait!

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  1. Crowdsoucing Changes Everything! « LaunchPad's Ready-Aim-Fire

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