How the JOBS Act 3.0 Might Impact Your Small Business
This year marked the passage of the JOBS Act 3.0, an attempt by lawmakers to level the playing field for companies of all types who need access to capital. Officially titled “JOBS and Investor Confidence Act,” it was passed in July with bi-partisan support. It’s also one of many attempts to reform the myriad of regulations that may be harming small businesses disproportionately. This newest development gives startups a way to access cash faster than before.
What Does It Entail?
The JOBS Act refers to a bundle of several separate bills. The highlights aim to primarily help entrepreneurs; some of which include:
- Clarification of the SEC’s regulation D: Rules to keep small startups from “running afoul of securities laws” when they pitch potential angel investors about possible venture capital opportunities.
- Refined definition of “accredited investors”: Where current rules keep those with under $200,000 of annual income from becoming an accredited investor, new allowances will let “experience and expertise” stand-in for some income.
- Reduction in the cost of going public: The JOBS Act would loosen some of the reporting requirements that have proven costly to smaller companies.
- Loosening of rules for secret IPOs: Old rules only allowed for “an emerging growth company” to perform confidential filings. Now, any issuer has similar opportunities to discuss business with a bigger pool of accredited investors without penalty to retail investors.
- New exchange for small businesses: These new “venture exchanges” will allow startups with fewer outstanding shares to join together for trading and get the same level of research and support as the larger players.
How Does It Help You?
Previously, it was difficult for new companies to get the kind of funding needed to make big technological investments, hire rapidly or test new products to bring to market. With the changes mentioned in the JOBS Act, however, many of those barriers to receiving capital have been lowered. Where smaller startups may have turned to crowdfunding in the past, they now have access to interested angel investors and supportive stakeholders without fear that they could be dinged by some of the more stifling securities laws. These rule changes also allow investors with a smaller net worth to get in on the ground floor, potentially opening up a flood of new donors eager to become part of a promising startup.
Companies eager to take the next step in their business plan should start now to research how these changes positively affect funding opportunities. Start revising your marketing materials to appeal to the newest group of accredited investors that will be coming to the market; then, gear up so that you’re ready to impress those new investor pools at networking events.
As the economy continues to stabilize, investors are feeling good about taking on a little extra risk —especially if it means being one of the first to invest in an auspicious, new endeavor. Smart companies will use the regulatory relief of the rule changes and this economic bounce-back period to get the capital needed for the next big phase in the company’s growth.