A recently Marist-McClatchy poll found that eight out of 10 Americans no longer believe they can achieve the American Dream. Almost the same percentage of those polled said that things will not get better for future generations. The level of pessimism regarding the present economy is truly at an all-time high.
There is good news despite what the majority of people think. Help could be on the way.
The JOBS act was passed by an overwhelming bipartisan majority of Congress in April, 2012 and promised the ability for everyday Americans to bring back the American Dream in a way no recent law had proposed. The JOBS Act promised the American public several attainable means of raising money to start or grow a new business. The JOBS Act set out to cut government red tape and to push banks that won’t lend money out of the small business startup equation. The new law would let anyone with a good idea or great business concept start or grow their small business and have a path to raise the capital needed from their peers – the other people on Main Street U.S.A. who are in their same shoes.
If implemented in a way that allows it to work as intended, the JOBS Act will allow everyday Americans to invest in new business opportunities that are presently out of their reach. More importantly, the JOBS Act will allow anyone to fulfill the American Dream by starting their own business and receiving funds from other members of the general public, without involving the wealthy and privileged folks that Wall Street caters to.
Two provisions of the JOBS Act can make the American dream become within reach of everyone. Title III or the “equity crowdfunding” provision will allow anyone to raise up to $1 million online through small investments from other members of the general public or “the crowd.” The ability to quickly and easily raise enough money to start and operate a new business through an online crowdfunding portal can change the way the American economy operates. New businesses will be able to start quickly and new jobs will be created. The funding gap that exists today makes it virtually impossible a small business to start without pledging a house as collateral or borrowing from friends and family. JOBS Act equity crowdfunding promises the ability to go out to “the crowd” and have a new business idea vetted, and then financed, by millions of people who are willing to make a small contribution and take a small ownership role in a venture they believe in.
Unfortunately, the SEC has drafted proposed rules that destroy what Congress intended, and that will make Title III equity crowdfunding financially out of reach for most everyday Americans to use as a tool to start a business. The SEC rules add layer upon layer of compliance costs and regulatory paperwork that make the equity crowdfunding law expensive to use and too complicated for a small business to implement. This needs to be changed. I have submitted a public comment to the SEC, as have many other Americans, and asked them to change these burdensome rules that will make equity crowdfunding dead on arrival. The SEC rules need to be simplified and the process made less expensive, or few will ever use this JOBS Act provision that should be available to change the entire landscape of how new businesses are financed.
Another section of the JOBS Act dubbed “Regulation A+” will allow a startup or small business to raise up to $50 million through a simplified initial public offering. While this is quite a different animal than equity crowdfunding, stocks sold through these simplified IPOs would be available to everyone, not just the rich and well-connected like the Facebook or Twitter IPOs of the past few years. A simple and relatively inexpensive method of making a pubic offering of company stock would be a game-changer for small businesses. Although a Regulation A+ IPO is not “crowdfunding” in the same sense as a rewards-based site like Kickstarter or equity crowdfunding under Title III, it is still using the crowd to fund a business, and in my opinion, truly the spirit of what “crowdfunding” is all about.
Unlike with Title III equity crowdfunding, the SEC got the proposed rules for Regulation A+ right. The SEC did two important things that make Regulation A+ extremely attractive: they eliminated the expensive need to comply with the Blue Sky laws of all 50 states and they allowed Regulation A+ securities to be sold to members of the general public, not just wealthy investors. If these rules stay in effect, Regulation A+ could have a far greater impact on bringing back the American Dream than equity crowdfunding.
Even though the SEC got this one right, there are many opponents with financial interests who wish to destroy Regulation A+ and make it unworkable for the everyday entrepreneur. Special interests are cut out of the financial loop by Regulation A+, such as state securities regulators who now add millions of dollars of compliance costs to the process of going public. As you can imagine, they are not happy that they would be eliminated by the SEC’s proposed Regulation A+ rules.
In the name of “protecting investors” these special interests have proposed expensive and burdensome additional state regulation that would render Regulation A+ extremely expensive and useless to small businesses. Some special interests have even proposed to only allow Regulation A+ offerings to be available to “accredited investors,” those privileged few who earn more than $200,000 per year or have a net worth in excess of $1,000,000. If these special interests prevail and cut mainstream America out of the process, Regulation A+ will be yet another means of Wall Street to get wealthier while preventing Main Street from prospering.
One example of the absurdity of the opponents of Regulation A+ opponents can be found in the person of the Massachusetts Chief Securities Regulator, who has submitted a public comment to the SEC scolding the commission for its proposed Regulation A+ rules. The state regulator claims that investors will not be protected without state oversight in “risky” Regulation A+ offerings. This is the same state that famously refused to allow its citizens to purchase stock in a “risky” company that went public in 1980. By doing so, the Massachusetts state government “protected” its citizens from investing $22 a share Apple, the computer behemoth whose stock now routinely trades at more than $500 a share.
Interestingly, while Massachusetts feels that investing in new businesses is too risky, it has no problem with citizens buying $4.8 billion in government issued lottery tickets. While startup companies have a high risk of failure, their chance of becoming profitable is far greater than 1 in 13,983,816, the odds of winning the jackpot in one of Massachusetts’ popular lottery games. Massachusetts also recently approved casino gambling and expects to generate revenues of between $300 million and $400 million from in state casinos. Is gambling a good investment for the citizens of Massachusetts? According to a recent news article, Americans lost $119 billion gambling in 2013. The government of Massachusetts does not seem to be concerned with protecting its citizens from the indisputable fact that statistically every casino gambler will eventually lose money, unlike the investors in a “risky” startup or emerging business.
I point these facts out not to specifically criticize the government of Massachusetts. Massachusetts is a fine state and I am sure their government officials want to protect their citizenry. I discuss these facts to illustrate the absurdity of any federal, state or local government overzealously adding new compliance, laws or regulations to protect citizens from investing in startup and emerging companies because of perceived risk, when much larger risks to the pocketbooks of the populace are promoted by the same governments.
In its proposed JOBS Act rules, the SEC got Regulation A+ right but got it all wrong with Title III equity crowdfunding. You can read my public letter and comments to the SEC on Regulation A+ here. The only way to bring back the American Dream from the brink of extinction is to allow new businesses to start, grow and create jobs. I strongly encourage anyone interested in seeing the resurrection of the American economy to write their congressmen and senators and, more importantly, to the SEC and to implore them to not gut these provisions of the JOBS Act that are designed to create a vibrant economy and bring back the American dream. Submit your comment to the SEC on Regulation A+ here. The 60-day period ends on March 24, 2014. Implore the commission to leave their Regulation A+ proposed rules intact and eliminating the need to comply with state Blue Sky laws as well as the ability of everyday Americans in “the crowd” to invest in these offerings.
In theory, the JOBS Act has the potential to bring back the American Dream. To make that happen, we need to use the power of the crowd to send comments to the SEC and letters to our lawmakers, and to put pressure on our government to make the JOBS Act work in a way that is affordable, reasonable and efficient.
Kendall Almerico is a nationally recognized crowdfunding and JOBS Act expert who was named #17 on VentureBeat’s list of Top 30 Influential Leaders in the Crowdfunding Industry. Kendall is a crowdfunding columnist for Entrepreneur.com and has appeared in USA Today, Forbes, Huffington Post, the Washington Post, New York Daily News, Business Insider, Fox Business Network and hundreds of newspaper, blog, radio and television interviews including CNN and The Sean Hannity Show. Almerico is the CEO of FundHub.Biz, a compliance site that assists with the regulatory aspects of funding a business through crowdfunding or private equity offerings. Kendall is also the founder of CrowdItForward, a charity-based crowd funding site that performs “Random Acts of Crowdfunding” and raises money for people in need through a 501(c)(3) charitable foundation and CEO of ClickStartMe, a crowdfunding site that provides individuals and businesses with an easy-to-use website to raise funds through online crowd funding.