A primer on Access to Capital and what it means for startups.
Today, the House of Representatives passed a package of bills that will improve the capital access landscape for innovators across the country, including the Micro Offering Safe Harbor Act (H.R.4850) and the Private Placement Improvement Act of 2016 (H.R.4852). With the approval of these two bills, the House has now passed four of Engine’s 2016 legislative priorities related to capital access.
On May 16, 2016, regulation crowdfunding will go into effect, meaning for the first time ever,anyone can invest in a startup through an online platform. This is big. Until Congress passed the JOBS Act in 2012, buying an equity stake in a company required being fairly wealthy or having a pre-existing relationship with the entrepreneurs raising capital. But the Internet has dramatically changed the way entrepreneurs share their ideas and connect with potential investors. With the JOBS Act, the law finally caught up as well – or it almost did.
Engine applauds the U.S. House of Representatives’ passage of the Helping Angels Lead Our Startups (HALOS) Act. The bill, which was approved by a wide margin of 325-89, would clarify regulatory ambiguities around general solicitation, making it easier for startups to publicly showcase their ideas without unintentionally running afoul of securities laws.
The pitch competition has practically become a standard rite of passage for startups, especially early-stage firms seeking investment. Yet, many pitch events may violate decades-old securities law. Congress is now considering legislation to fix this: The HALOS Act. Sponsored by Rep. Steve Chabot (R-OH), this legislation clarifies the rules around pitch competitions, making it easier for startups to pitch their business plans and find potential investors.
April 5, 2016 marked the four year anniversary of the enactment of the Jumpstart Our Business Startups (JOBS) Act. While the statute is still relatively young, we have already begun to see the positive impacts that its provisions have had on startups’ ability to raise capital. It has made going public easier and created new pathways for startups to raise money through Regulation A+ and general solicitation under Regulation D. And with regulation crowdfunding set to finally go live in May, we are hopeful that a vibrant non-accredited investor crowdfunding market will emerge in the near future.
As strange as it may seem, only a small percentage of Americans can legally invest in most startups today. Under long-standing rules governing who qualifies as a so-called “accredited investor,” only quite wealthy individuals (those make at least $200,000 in annual income or have $1 million in assets, excluding their home) can buy shares in a fast-growing, privately held company.
The Senate is stalling on actions taken by the House to grow job creation, and if they won’t take them up individually, House Majority Leader Eric Cantor (R-VA) hopes the Senate can consider the bills all at once. Cantor today announced House Republicans would bundle a number of entrepreneur-friendly bills focused on aiding startups in gaining better access to markets and capital, easing regulations to allow crowdfunding, and raising thresholds for compliance. Cantor detailed the plan, dubbed the Jumpstarting Our Business Startups (JOBS) Act, in a POLITICO op-ed published earlier today.
The package includes the following bills:
H.R.2940, - Access to Capital for Job Creators Act
Passed in the House, this bill would revise regulation D offerings to relax limitations for qualified investors to sell securities. Currently, regulation D allows some businesses to sell securities without registering them with the SEC. H.R.2940 would make it simpler for startups to raise capital through crowdfunding by removing the regulation D prohibition of general solicitation and general advertising for accredited investors.
This bill would amend the Securities Act of 1933 to exempt from SEC regulation a class of offerings between $5 million and $50 million, with a provision to review and increase this figure biennally. The Securities Act of 1933 capped exemption at $5 million and is long overdue for an update. Increasing the breadth of exemption would make it simpler for startups to raise capital and still be in compliance with SEC regulations.
This bill would amend the Securities Exchange Act of 1934 to increase the threshold from $1 million to $10 million for shareholder registration for an issuer of securities. As with the Small Company Capital Formation Act of 2011, this would ease regulations and make it simpler for startups to gain access to capital and still be in compliance with the SEC.
These bills are no-brainers, and what’s more, many of these provisions appear in the President’s Startup America legislative agenda, released in late January. In our view, what’s good for startups is good for job creation and the overall economy. Now let’s get them through the Senate.
What else should legislators consider this year? Tell us over at Step2 and help define the Innovation Agenda.