Yesterday, the House of Representatives passed two bills supporting capital access for startups, H.R. 1525, the Disclosure Modernization and Simplification Act of 2015 and H.R. 1839, the Reforming Access for Investments in Startup Enterprises Act of 2015 or the RAISE Act. These new bills contain small measures that simplify and codify some of the regulations that govern how growing private companies raise capital. While their ultimate impact may be narrow, it’s encouraging to see members of Congress seek out ways to support capital formation for our country’s emerging companies. And we hope they’ll continue to, because there’s more work to be done.
Earlier this year we wrote a letter to House Financial Services Committee leadership, Chairman Joe Hensarling and Ranking Member Maxine Waters to express our support for the RAISE Act. The bill would codify an existing practice that allows startup employees with equity to resell their shares to accredited investors, thus enabling greater liquidity. The illiquidity of startup shares is an especially challenging aspect for startups in both raising capital and in hiring employees. Illiquid shares may discourage potential investors who are unwilling to tie up their capital in a high-risk asset class for an unknown or extended period of time. And for many potential employees, while stock options may be lucrative, they don’t offer the steady income stream that workers often rely on.
As the bills make their way to the other chamber, we hope our Senators will also recognize the value startups provide to our economy and similarly support measures that spur greater capital formation.