The Guide to Entrepreneurship

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Chapter 11

Meet the JOBS Act

11.1 Introduction

In an effort to jump-start the entrepreneurial economy, the JOBS

(Jumpstart Our Business Startups) Act created a new provision in

the Securities Act of 1933 Section 4(6) that allows Emerging Growth

Companies (EGCs) to raise up to $1 million in any 12-month period by

selling securities through authorized intermediaries, subject to certain limi-

tations on the matter of the offering and by limiting the amount any per-

son is permitted to invest.

EGCs are a new category of issuer. EGCs are those with (1) less than

$1 billion total annual gross revenues in their most recent scal year, and (2)

have not had a registered public offering before December 8, 2012.

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The JOBS Act (signed into law April 6, 2012) facilitates nancing across

the spectrum from seed capital to public offerings. Following are some of

the most important aspects and implications:

◾ Permitting “crowdfunding”

◾ Easing restrictions on fundraising from accredited investors

◾ Easing mandatory reporting triggers under the SEC Act

◾ Increasing the amount of money companies may raise in “mini-IPOs”

◾ Reducing many burdens on EGCs going public

◾ Providing more capital to entrepreneurs and EGCs, creating jobs and

providing opportunities for non-accredited investors to invest in both

community-based businesses and entrepreneurial companies

228 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company

◾ For the last several years, the number of VC nancings in the U.S. has

continued to drop—approximately 3500 VC-led deals; VCs are raising

less capital and continue to nance only larger opportunities with sig-

nicant IRR potential and with exits of greater than $50 million

◾ Although Angel statistics are difcult to obtain, they funded nearly as

much as VCs

◾ Fewer than 10% of all accredited investors in the U.S. invest in private

nancings; except as friends or family, non-accredited investors have no

exposure to private nancings

◾ There are 25,000,000 EGCs in the U.S.; many are looking for funding

and banks are not lending; identifying investors is extremely difcult

given securities laws

11.2 The JOBS Act at a Glance

The JOBS Act seeks to accomplish this goal by, among other measures,

relaxing certain provisions of the Sarbanes-Oxley and Dodd-Frank Acts

insofar as those provisions apply to a class of newly public companies

dubbed EGCs. A primary goal of the legislation is to facilitate the ability of

growing companies to raise capital, as follows:

◾ Removes the prohibition on general solicitation in connection with

transactions dealing with Rule 508 or Rule 144A, provided that sales are

limited to qualifying investors

◾ Allows the thresholds that trigger registration of a security under

Section 12(g), including a different threshold for banks and bank hold-

ing companies

◾ Provides, to a new category of EGCs, relief from requirements and

other restrictions applicable to IPOs and on a transitional basis for up to

5 years, relief from certain reporting requirements

◾ Adds a “crowfunding” exemption

◾ Authorizes the SC to increase the amount permitted to be raised in a

Regulation A offering to $50 million in any 12-month period

◾ Modications to Rule 506 will provide substantial freedom for issuers to

promote their offerings to a wider group of investors

◾ Anyone who can convince the investing public that they have a good

business idea can become an entrepreneur