Signed into law last week by President Obama, the JOBS Act (Jumpstart Our Business Startups Act) is heralded as a measure set to revolutionize how startup companies, investors (experienced and novice), the SEC and Wall Street will be able to interact in the investment world. The Act's most popular content, treatment of the practice of crowdfunding, an issue that arose with the emergence of platforms like Kickstarter, potentially opens startups up to millions of investors they never before would have had access to due to the Securities and Exchange Commission's (SEC) rules on investing and rules as to what type of person qualifies as an "accredited investor," a term of art that essentially outlined requirements that must be met for someone to be an investor.
While much of the tech community rejoices, all of the legal wrinkles have yet to be ironed out. With the passage of this Act, Congress set out deadlines for the SEC to create the regulatory framework under which it will implement the Act. The SEC's "Accredited Investor" standards were created with good reason: to protect the not-so-savvy investor from being taken advantage of (queue the go-to political imagery of grandma losing her house, or in this case, being swindled out of all of her money).
The JOBS Act is not just about "startups." Its provisions shake the foundations of legal settlements around how Wall Street operates when it comes to IPOs and the reporting obligations of public companies. Attorneys are not soon to abandon the regulatory documents that have to be filed on behalf of companies and founders as part of the funding process. What will happen to the growth of crowdfunding and how the investment scene may change has yet to be determined. From a legal perspective, there will be challenges that emerge in the interpretation of the SEC's regulatory structure that will also define the parameters of how the JOBS Act is practically implemented.
Managing the need for startup growth and an economic jumpstart versus regulation meant to protect investors and prevent the wrongs of the past is a balancing act and, frankly, a delicate one. Legal and securities regulation experts, including former SEC commissioners, have mixed views on what the real impacts of the law might be or whether the passage of the law sends the right message to Wall Street. After all, isn't that how we all got here with our economy in the first place? Questions such as this were intimate to the debate of the JOBS Act and will subsist.
It's not game over in terms of the JOBS Act being passed. It's not a carte blanche to everyone itching to get funded or do the funding, and certainly, proceeding with caution is best advised, for the founder, the would-be VC, the regulator and the banker alike.