Tax & Finance

House Passes the RAISE Act


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.

Startup News Digest 9/25/15


Our weekly take on some of the biggest stories in startup and tech policy:

Startups Defend Net Neutrality Order. The FCC is facing ongoing litigation in the DC Circuit Court of Appeals over the net neutrality rules it passed earlier this year, and on Monday, the court received briefs from a variety of companies and organizations supporting the FCC’s rules. Engine filed a brief along with a group of innovative startups that included Dwolla, Fandor, Foursquare, General Assembly, GitHub, Imgur, Keen IO, Mapbox, and Shapeways. We argue that the FCC’s decision to reclassify broadband as a telecommunications service was necessary to preserve the continued growth of the startup sector, which has in turn driven consumer demand for broadband and incentivized companies to invest in their networks. The court will hear oral arguments in the case on December 4 and will likely render its decision sometime next year.

SEC To Finalize Crowdfunding Rules. Sources at the Securities and Exchange Commission have told Politico the agency is likely to finalize long-awaited crowdfunding rules in late October or early November. SEC rulemaking will put Title III of the JOBS Act into effect, which could radically expand capital access for startups—though the statute does contain some burdensome requirements for companies. While the startup community will be excited to see any action from the SEC in light of an extended delay, we need to ensure that whatever regulatory regime the SEC adopts is well-calibrated and accessible to the small, emerging companies that could most benefit from new sources of capital.

Bush Campaigns Against Open Internet. Most of the Republican candidates in the 2016 presidential race have come to realize that an overwhelming majority of the public supports net neutrality rules (including 81% of Republicans) and have refrained from loudly criticising the FCC’s Open Internet Order. But this week, Former Governor Jeb Bush expressed his opposition to net neutrality (a policy he onced called “one of the craziest ideas [he’s] ever heard”), arguing that preventing ISPs from abusing their gatekeeper power does nothing to enhance consumer welfare. Bush’s comments run counter to both the FCC and the conservative DC Circuit Court of Appeals, which have recognized that net neutrality rules and foster the growth of the edge providers and promotes investment in broadband networks, resulting in better and more affordable service for consumers. It’s a reminder that startups, consumers, and everyone else who benefits from the open Internet should keep a close eye on this presidential race. 

Administration Taking Steps to Promote High-Speed Broadband Access. On Monday, the Broadband Opportunity Council published its first report, which includes 36 actions that federal agencies will take to encourage broadband deployment.  These actions require no new funding, “but existing sources of funding are being opened up and barriers to deployment are being brought down.”  Of particular note is that the White House refers to broadband as a “core utility,” like electricity or water. We tend to agree - broadband is no longer a luxury. Connectivity is core to innovation and the ability of startups to reach customers and scale, and we are pleased to see the Administration taking these steps to bring access to underserved populations and areas of the country.  

White House Considers Encryption. Thanks to some leaked documents from the White House, it’s rumored that President Obama may come out in opposition to a law that would require firms be able to unlock their customer’s encrypted smartphones and applications. Up to this point, law enforcement has argued the need for backdoors to encryption to ensure national security and safety. This sort of advocacy from the White House would help repair global trust in the US government, countering the narrative in Europe that the US is trying to expand its surveillance activities. Meanwhile, the American Civil Liberties Union (ACLU) and other privacy advocates continue to push the importance of US government’s use of encryption to promote both personal privacy and national security.

“Facebook giveth and Facebook taketh away.”  The Wall Street Journal reported this week that dozens of startups have “shut down, been acquired or overhauled their business” as a result of Facebook’s new policies limiting outsider access to some of its users’ date. Facebook’s rules, which went into place in May, restrict what data can be used by third parties like startups, academics, politicians or organizations.  Other social media giants like LinkedIn and Twitter have enacted similar policies, signaling to the startup world that if you are building a product or service that relies on data from social media sites, that data may not always be available...

ECJ Advisor Deals Blow to U.S. Tech Companies.  In other data related news, a European Court of Justice (ECJ) advisor issued an opinion this week that the “safe harbour” agreement allowing for data transfers between the EU and the U.S. is “invalid” due to growing concerns around U.S. surveillance practices.  While the lawyer’s opinion is not legally binding, if cemented by a formal ruling it would create a headache for U.S. tech companies who could face data localization requirements in any EU countries.

Women Tech Leaders. Fortune profiles some of the powerful female talent Google has been able to attract at the executive level, including Ruth Porat, a recent addition who has led the transition from Google to Alphabet. Many of these executives after building their experience at Google have left to grow smaller tech companies. Meanwhile, Mary Lou Jepsen of Facebook has a different take: she sees many senior women leaving because they feel isolated by the tech industry.




SEC Said to Finalize Long-Awaited Crowdfunding Rules Next Month


Since 2012, entrepreneurs and everyday investors have been eagerly waiting for the Securities and Exchange Commission to finalize rules that will to put Title III of the JOBS Act into effect, allowing all Americans—regardless of their income—to invest in startups. Earlier this week, Politico reported on SEC sources saying final rules will be announced in late October.  

Title III is most highly anticipated and most controversial provision of the JOBS Act still awaiting SEC rulemaking. While investment crowdfunding under Title III has the potential to radically expand capital access for startups, the statute contains some burdensome requirements for companies, such as requiring audited financial statements for small companies to raise funds from unaccredited investors (people that make less than $200,000 per year or have less than $1 million in assets).

Many experts in the business community believe these requirements could make crowdfunding unworkable for most businesses. Further, the proposed rules announced by the SEC in October 2013 put forth additional requirements for companies seeking to raise money through crowdfunding, prompting concerns from entrepreneurs, crowdfunding platforms, and investors about the debilitating and largely unnecessary costs these rules create for small issuers.

Meanwhile, the delay in SEC rulemaking has allowed us to watch as other crowdfunding markets have evolved. The UK, for instance, has a robust investment crowdfunding market open to all investors, and it's seen tremendous growth in the last few years under a remarkably sparse regulatory regime. Here in the US, rewards-based crowdfunding and accredited investor crowdfunding also continue to grow as more companies seek alternative, innovative forms of financing. These markets offer valuable lessons for lawmakers and regulators alike as they continue to refine the rules governing investment crowdfunding under Title III—lessons we’ll explore in detail in our forthcoming whitepaper, "Financing the New Innovation Economy: Making Investment Crowdfunding Work Better for Startups and Investors." Look out for its release in the coming weeks.

Though the startup community will be excited to see any action from the SEC in light of what has already been an extended delay, we need to make sure that whatever regulatory regime the SEC adopts is well-calibrated and favors the small, emerging companies that could most benefit from accessing new sources of capital. And regardless of the rules the SEC adopts, we look forward to working in the coming years to improve the US crowdfunding rules to help the startup economy continue to grow.

Startup News Digest 9/18/15

Our weekly take on some of the biggest stories in startup and tech policy.

Tech and 2016. In case you missed it, check out Julie talking about tech and the 2016 election on KCRW’s Press Play with Madeleine Brand.

FCC Opens Up Business Broadband Data to New Eyes. On Thursday, the Federal Communications Commission (FCC) announced that it will release data on the little-understood special access market. While most consumers have never heard of special access lines, you probably unknowingly use them every day. They are the high capacity business broadband lines that allow ATMs to connect directly to your bank or cell phone towers to connect back to the network. Competition in this industry is sorely lacking, with just two providers covering most of the U.S. and jacking up prices for the startups, universities, hospitals, and other businesses that use them. While the data will only be accessible to analysts approved by the FCC, its release represents a step in the right direction towards more transparency, increased competition, and lower broadband prices.

Senate Committee Considers ECPA Updates. The Senate Judiciary Committee held a hearing on reforming the Electronic Communications Privacy Act (ECPA) on Wednesday morning. As we’ve covered in past digests, it's still legal for law enforcement to access your emails and other digital data without a warrant. Last week, the California legislature passed a bill to modernize these outdated digital privacy laws at the state level. Still, a federal overhaul of ECPA would be an even better fix, bringing these laws out of the digital dark ages.  Sens. Lee (R-UT) and Leahy (D-VT) have proposed a bill in the Senate, and there is similar legislation in the House. We’ll be tracking reform efforts.  

Dancing Baby Wins Victory For Copyright Fairness. The courts ruled this week in Lenz v. Universal, the famous “dancing baby” case. As Evan writes, “The Lenz ruling is important for a few reasons. First, it should make it much harder for content owners to abuse the takedown process. […] Second, the decision should serve as a loud reminder that the tech world needs to get to work rebalancing our copyright laws to ensure that they’re actually promoting creativity and expression.”  Read the whole post here.

$81M for CS in NYC. On Wednesday, New York City Mayor Bill de Blasio announced an $81 million public private partnership to make computer science education available to every student in city public schools by 2025. Substantial contributions have come from the Wilson family foundation, the AOL Charitable Foundation, and the Robin Hood Foundation. New York joins Chicago and San Francisco in terms of large cities that have made similar commitments, and we hope to see other cities, states, and the federal government continue to build on such efforts to prepare students for jobs in the growing innovation economy.

The Fight Is On Over Chicago’s Streaming Tax.  A group of Chicago residents have sued the city over its controversial application of the 9% Amusement Tax to online streaming services like Netflix, Hulu, and Spotify.  The Amusement Tax, which applies to events like concerts and sporting games, has been in existence for a while, but was only recently expanded to cover streaming services. And Chicagoans’ bills are already increasing.  As Ars Technica reports, one reader’s Spotify bill went from $7.99 to $8.71 this month. We’ll be watching, as the outcome of this case could have a national impact on the power of cities and states to tax the internet economy.

“Cool clock, Ahmed”. When a Texas middle-schooler’s homemade invention was mistaken for a bomb this week, prompting an outlandish response by his school and local law enforcement, it caught the tech world’s - and the President’s - attention. As a New Yorker writer points out, “His arrest comes at a moment when some of the world’s most influential people...have argued that there aren’t enough U.S. students gaining the math and science skills that will get them jobs in the tech sector."

A Different Kind of Tech Event. We were impressed and encouraged by the conversation at last week’s Tech Inclusion conference in San Francisco, which brought together leaders in Silicon Valley and the national tech community to discuss the challenge of making the tech industry more diverse. Read our take on why this wasn’t your typical tech event and what we took away.



Startup News Digest 9/4/15

Our weekly take on some of the biggest stories in startup and tech policy:

Growing Support for CalECPA.  Right now it's still legal for law enforcement to access your emails and other digital data without a warrant. SB 178, the California Electronic Communications Privacy Act (“CalECPA”), would change that on the state level by modernizing outdated digital privacy laws. The bill passed the California Senate back in June, but still faces a couple of hurdles, including a vote in the Assembly that should take place in the next couple of weeks.  The LA Times just endorsed SB 178, noting that “Californians need the protections offered by SB 178, and the bill deserves the Legislature's support.”  A poll published this week found similar support among California voters, with 82% of participants agreeing that law enforcement should get a warrant before accessing an individual’s digital data.  Engine echoes this endorsement of SB 178 and hopes to see California take the lead on updating its privacy laws to keep pace with the changing digital landscape.

The Future of Higher Education. Daniel Pianko of University Ventures writing in TechCrunch argues that the lack of innovation in higher education is due to a lack of commitment from Silicon Valley billionaires. “Today’s current generation of entrepreneurs are spending their energy and resources lobbying for band-aid solutions like H-1B visas, when they could be reimagining the current pipeline to address the lack of female and minority engineers in their companies.” Pianko points out that it was investment from 20th century titans of industry like Johns Hopkins and Andrew Carnegie that created the modern research university, and forced schools like Harvard and Yale to evolve in order to compete. He also points to non-traditional education models being pioneered at places like Galvanize. Here’s a look back at a deep dive we did on education policy and its impact on innovation.

New White House Hire. The White House announced that they are hiring their first Director of Product this week. Josh Miller, a startup founder who sold his company to Facebook last year will lead efforts to improve their existing digital products and look to develop new ones. Miller has a history of bringing a tech perspective to civic engagement. This marks yet another move from an administration that seems determined to engage with startups to improve the way government functions.  

Diversity in Tech. Troubling new data from the Pew Research Center shows that “businesses owned by women and minorities bring in far less revenue than firms with male or non-minority owners.” The research finds that even when you look at sectors where women tend to fare better, the problem persists. This Fortune article hypothesizes that one big factor may be a lack of investors--a problem that has been documented before. Engine will continue to work on access to capital issues, particularly as it affects founders from underrepresented groups. Stay tuned for more on that in September….  

Drones. The National Journal reports that in the absence of federal regulations, 26 states have now passed local legislation to limit the operation of drones. This patchworks of regulation is causing concerns for operators and commercial users. Hopefully the months ahead will see a thoughtful approach to protecting safety and privacy that doesn’t needlessly throttle innovation in this growing industry.

Car Hacking. The debate over how to make Internet-connected vehicles more resistant to cyber attacks is heating up in Washington. Much of the discussion will center around whether these are problems that can be solved within the industry, or if government action will be necessary to spur automakers to act.

Startup News Digest 8/21/15


Welcome to the Startup News Digest, our weekly take on some of the biggest stories in startup and tech policy. Here's what we've been tracking the week ending August 21st, 2015:

  • Venue Reform. 44.4% of all patent cases are filed in the Eastern District of Texas. And that’s no accident. Our friends at EFF took a close look at the numbers, and found that the “probability is so vanishingly small that you’d be more likely to win the Powerball jackpot 200 times in a row”. So why are so many cases filed there? Because the Eastern District is notoriously friendly to plaintiffs, making this an ideal location for patent trolls to operate. More on the numbers, and the need for venue reform, here. And read our recent take on the problem here.
  • Copyright Law and Creativity. Copyright law's principal purpose is to encourage creativity: giving creators exclusive control over their content, the argument goes, will allow them to earn enough money to sustain further creativity. The trajectory of copyright policy in the past few decades seems to operate on the reductio ad absurdum that if exclusive control over content leads to more creativity, maximum control must lead to maximum creativity. It is no surprise, then, that content industries reacted so strongly to digital technologies that could weaken control over the distribution of their work, arguing that the Internet will ultimately destroy creative industries. But, as the New York Times highlights, this argument doesn't hold up all that well in practice. On the contrary, creative production has exploded with the rise of digital distribution technologies. The findings should give policymakers pause about further ratcheting up copyright protections like term lengths and infringement penalties that already likely diminish rather than promote creativity. We wrote more about the negative impact of punitive copyright law here.
  • Diversity in Tech. The Verge took a close look at the diversity numbers at some of the largest tech companies.  And while the numbers aren’t good, they also point to some of the problems with the ways employment data gets reported to the federal government. If we’re going to make progress in diversifying the tech sector, we need data that accurately reflects the problem and the way it responds to various efforts from both the private and public sector. Check out some of Engine’s work on diversifying tech here.
  • Taxing the Digital Economy. The Wall Street Journal looks at ways different states are trying to collect taxes from new technologies to offset losses in sales tax and other traditional sources of revenue. While states are reasonable to want to collect funds they are due, this kind of piecemeal approach creates serious regulatory issues for startups that operate nationally or globally. And it has the potential to push entrepreneurs out of states with particularly onerous policies. More here on the dangers of trying to apply old tax and regulatory schema to new technologies.
  • Drones. As drones (or unmanned aerial vehicles, UAVs) go mainstream, and some disrupt air traffic, policymakers are looking to apply rules that would limit their ability to cause danger or invade privacy. Sen. Chuck Schumer (NY) is pushing to require dronemakers to develop technology that would keep drones from entering restricted airspace. This sort of geo-fencing provision will likely find its way into negotiations over the extension of the FAA reauthorization bill next month. Meanwhile, researchers at UC Berkeley are testing a license plate for drones consisting of multicolored lights on the bottom of an aircraft. The unique pattern of blinks assigned to each drone could be identified in a database by law enforcement.
  • Decoding the On-Demand Economy. Policymakers (and presidential candidates, too) are grappling with how to interpret the emerging on-demand economy and too often, as Devin Findler of Institute for the Future points out, this industry is wholly categorized as either good or bad. The conversation among regulators, policymakers and even media critics should instead seek to understand the underlying technologies transforming sectors of our economy and how new platforms built on top of those technologies can be "intentionally designed to maximize the benefits for everyone connected to them." IFTF recently sat down with the Department of Labor to share these more nuanced insights about the future of work - we need more of these conversations happening at every level of government.


Chicago’s New “Cloud Tax” Raises Questions Around Process, Policy


It’s no secret the winters in Chicago are brutal—anyone who has lived through a January in the Windy City can attest to this fact. Long periods of Netflix-aided hibernation are common for Chicagoans in the depths of winter. This is perhaps why the news last month that city residents will begin paying a “cloud tax” on their monthly Netflix bill didn’t go over well. As more business activity migrates online and consequently outside traditional tax protocols, cities and states are being forced to modify their tax regimes to adapt to these changing circumstances. While governments are certainly justified in their concern about dwindling tax receipts, digital commerce is fundamentally different than traditional brick-and-mortar enterprise and requires a thoughtful, unique approach to taxation in order to properly protect public interests without stunting business growth. Unfortunately, Chicago’s approach to digital taxation appears to be precisely the sort of hastily considered, ad hoc policy that could end up doing serious harm to the digital economy.

The ruling from the Chicago Department of Finance imposes a 9% tax on “electronically delivered amusements,” defined as “any exhibition, performance, presentation or show for entertainment purposes.” Essentially, this means that any electronically delivered television shows, movies, or music consumed for rental by customers in the city will be taxed. Technically speaking, the tax itself isn’t “new”—rather, it’s an expansion of Chicago’s existing amusement tax which covers concerts, sporting events and other activities. The ruling requires online digital content distributors to collect amusement taxes for digital amusements. While other cities have similar amusement taxes for brick-and-mortar establishments, Chicago’s application of the tax to digital content distributors is novel.

Chicago realized the tax money it was collecting from brick-and-mortar enterprises like movie theatres and video stores was evaporating as consumers stopped frequenting such establishments in favor of Netflix and other streaming services. So what’s the problem if Chicago is merely taxing digital video rentals in the same way it had traditionally been taxing physical video rentals? For one thing, the ruling took most people by surprise because there was little if any public participation in the decision. Instead of passing a new city ordinance or going to the voters to approve a new tax—both of which would have involved robust opportunity for public comment—the Department of Finance chose to quietly broaden an existing law. It’s hard to imagine a similar tax policy with such a wide impact not being publicly debated. Sidestepping voter approval suggests (not surprisingly) that there may have been public opposition to the new tax.

Beyond the process questions this new regulation raises, it highlights a broader issue around taxation of digital commerce. While a local brick-and-mortar business only has to worry about complying with tax laws of the jurisdiction in which it operates, online businesses may be subject to taxation in any jurisdiction in which its customers reside—that is, anywhere in the US.  For larger companies like Netflix, setting up the infrastructure to comply with a variety of tax jurisdiction is possible (though still expensive and onerous). For the small businesses that have historically driven the growth of the Internet economy, such compliance obligations would be insurmountable. According to the US Census, Illinois has 6,994 separate local governments. If each one chose to implement unique taxes on various internet goods and services, compliance would be significantly convoluted. For small businesses operating in an online marketplace with limited margins, such requirements could potentially put them out of business.

It’s no surprise cities struggling with reduced tax revenue are looking for new revenue streams. Indeed, discussion and action needs to take place around fair online tax policy, but it needs to take into account the uniqueness of the online environment. Chicago’s recent action highlights the need to have these conversations soon, and at a national level. Congress has put at least some effort into addressing the problem of e-commerce taxation, introducing the Marketplace Fairness Act three times, and discussing alternate proposals from Reps. Chaffetz, Goodlatte, and Eshoo. However, the current legislative climate—coupled with opposition from large Internet businesses—makes legislative action before the 2016 election unlikely. In the interim, other cities and states may follow Chicago’s lead, attempting to raise tax revenues in the short term, while jeopardizing the long-term health of the Internet economy.

BitLicense: It's not just for New Yorkers


Periodically, Engine will invite policy experts to weigh in on specific topics with guest blog posts. Today’s expert is Peter Van Valkenburgh, Director of Research at Coin Center. As Bitcoin's leading advocacy group, it is Coin Center's mission to ensure that any regulatory reaction to digital currencies is based on a sound understanding of the technology. As the bitcoin ecosystem grows, we are keeping a pulse on the policy environment it faces as it disrupts age-old financial regulatory systems. One new regulatory system with major implications is New York’s recently approved BitLicense, which will go into effect August 8. If you have even the most broad interactions with bitcoin, we suggest you read the summary below - with one month to go until unlicensed businesses will be prosecuted, we want to make sure startups understand the potential impacts of the new law.  


We’ve one month to go until the grace period ends and the BitLicense—New York’s new digital currency regulations—comes into full effect. What’s a BitLicense? The short of it is don’t get caught engaging in virtual currency business activity with a New York resident or visitor without one after August 8th!

If that sentence reads like a bad civics PSA or a Jaden Smith tweet, don’t worry - you’re not alone. The BitLicense is a confusing new regulation, but this is the top line: it can apply to your business even if you are not located in New York and even in some situations where you may not think you are offering digital currency transmission. So, in the spirit of not ending up on the wrong side of a prosecution, here are 8 things everyone involved with a digital currency business should know:


  • Whether or not you run your business from New York has nothing to do with whether you need a BitLicense. The BitLicense isn’t interested in where you are; it cares about where your customers are. So if you have a New York resident using your website or app, or you have a California resident traveling in New York City using your product, you may need a license. That’s true even if you have no way of knowing that the user is in NY. There’s a federal law, the Bank Secrecy Act, that makes it a felony to operate a money services business in a state where you don’t have a license, and there is no “knowledge” requirement to that law. Take a customer who’s in New York but spoofing their IP to appear like they are from elsewhere? You could be violating a federal law—and facing prison time—without even knowing it.   
  • You probably need a BitLicense if you do any of the following as a business: transmit digital currency; store, hold, or maintain custody or control of digital currency for another; buy or sell digital currency as a consumer business; or control, administer, or issue a digital currency. Therefore, asking whether you need a license is a process that involves asking whether any of these words—like transmit, store, or control—is an apt metaphor for something specific you do in your business. Holding the private keys to a customer’s bitcoin is the easier fact-pattern: “storing” and “holding” both sound like obvious metaphors for that technical activity. Maintaining and updating an app that helps a user store her own keys? That’s harder and you’d probably want to at least talk to a lawyer or seek clarification from DFS.     
  • No one really knows what “administrating, issuing, or controlling” means in the context of bitcoin or other cryptocurrencies; if you think you might be doing these things maybe you should ask. The definition of a virtual currency business in this section of the regulation is tricky. It makes some sense in the world of centralized digital currencies, where the centralized company or entity creating the currency can decide when to issue new units of currency and how to control or administer their allocation. The section doesn’t make any sense in the world of decentralized currency like Bitcoin. Bitcoin has no definite “issuer,” “administrator,” or “controller.” People mine new bitcoins (“issuing?”), yes. Others write software that miners run (“administering?”). Others run nodes that help the P2P network communicate (“controlling?!”). Are any of these activities covered? Probably not: Benjamin Lawsky, the outgoing Superintendent of the DFS, repeatedly said that miners and software designers will not need a license. Trouble is, the law is the text of the regulation, not the speeches given by its author. That text is vague, so, again, the best advice is to ask a lawyer and get clarification from DFS regarding your particular facts and circumstances. Maybe we need an abbreviation for that answer. Let’s call it A(sk) L(awyer); S(eek) C(larification). AL;SC.   
  • Awesome new tools, like multi-sig, may not be excluded from licensing. Cryptocurrencies can do pretty neat tricks, like dividing control over some amount of currency between two or more people. People in a bitcoin multi-sig transaction, for example, can effectively vote to decide where the money moves. It all happens with cryptographic keys that are linked to cryptocurrency addresses. So, if you run a business that only holds one key to some amount of bitcoin, and your customers hold the other keys, do you need a license? What if you could never even spend those bitcoins on your own, or lose them, or get hacked and have them stolen? Your business certainly isn’t like the traditional banks or money transmitters we talked about above—the technology limits your losses and makes you less risky!—but do you still “maintain custody or control,” as per the regulation? We’d like to think that the answer is no, because these tools are amazing innovations that provide security and limit consumer risk rather than create it. The safe answer: AL;SC.
  • Nominal, non-financial uses are excluded but what that means isn’t crystal clear. The bitlicense has an exemption for companies that are transmitting “nominal” amounts for “non-financial uses.” This is seemingly aimed at exempting so called Bitcoin 2.0 or Blockchain companies that want to use cryptocurrency ledgers to record non-financial metadata—i.e. a document notary service or an identity validation tool. This may be where colored coins, app coins, or sidechain businesses could fit. But “nominal” isn’t defined, and neither is “non-financial,” so the prudent next steps for your blockchain business? AL;SC.    
  • Software development is excluded as long as that’s all you’re doing. If you are writing an app that lets people check the price of Bitcoin, you’re home-free because of this exemption. But what if you write software for mining clients, and you also mine for fun? Or what if you write a mobile wallet app that stores users’ keys on their device? Or what if you are a core contributor to the protocol?! Are you really just writing software, and will DFS agree with that self-portrait? Sadly, and First Amendment problems aside, you should probably AL;SC.
  • You can ask for a conditional license but there’s no clear guidelines for when it will or will not be granted, or how much easier it will be to get. If this is all starting to sound hard and expensive, take note: the BitLicense can be tailored to be lighter-touch and cheaper at the discretion of the Superintendent. This is called a “conditional license.” Unfortunately, however, there’s no obvious way to qualify for a conditional license. Some commenters in the drafting process asked for a formal threshold, something like “all companies under two-years old, and dealing with less than $5 Million in obligations annually can get conditional license.” Those thresholds didn’t make it into the final draft however, so if you want a conditional license . . . sorry . . . AL;SC.  
  • If you need a license and get one, you’ll have to do some hard work keeping records, filing reports, and asking permission to make new products. Unlike normal money transmission licenses, a BitLicense comes with some special obligations. You’ll need to keep specifically formatted records of all your customer’s activities. You’ll need to file reports about transactions to New York in situations where you didn’t already have to file them with federal regulators like the Department of Treasury. You’ll need to ask permission if you make “material” changes to your apps or products, and if you decide to release any new products. The specifics requirements are far too complicated to learn in a blog post, you’ll need to AL;SC, a lot.


So what do you now know for sure with regard to the BitLicense? AL;SC! Ask a lawyer and seek clarification from the DFS. We can say this for sure: the BitLicense just drummed up a whole bunch of new business for the legal profession. We also know that it will be harder to operate a legal digital currency business than it will be to operate a traditional money transmission business—don’t forget those additional recordkeeping requirements and change-of-business requirements. These are some unfortunate new realities, and they make it hard to believe that this new law is really the pro-innovation regulation some politicians hoped or said it would be. Whatever it is, it’s here and the grace period ends in one month, so don’t be caught off guard. And if you’re bothered by all this, consider supporting organizations that are working with the state to improve regulations.

SEC Finalizes Rules for Title IV of the JOBS Act


Today, the Securities and Exchange Commission convened to vote on adopting rules to implement Title IV of the JOBS Act. The Commission voted unanimously, finally putting Title IV into effect nearly three years after the original legislation was signed into law.

Title IV addresses Regulation A, a securities registration exemption that allows private companies to raise a limited amount of capital without having to meet many of the onerous disclosure and reporting conditions required of publicly-traded companies. The JOBS Act gave Regulation A, (now reframed as Regulation A+,) new life by raising the offering cap from $5 million to $50 million. Some are calling  Reg A+ a kind of “mini IPO”, since it allows companies to raise funds from the wider public, including unaccredited investors, so long as their investment does not exceed 10% of their income or net worth.

The rules that were ultimately adopted divide Regulation A+ raises into two tiers, up to $20 million and up to $50 million. In the $20 to $50 million range, companies no longer have to register their securities with each state individually. The preemption of state blue sky laws, regulations that govern securities sales in each state, is being lauded as a huge win for the wider business and investment communities. These laws were a big reason why Regulation A was rarely utilized as a capital formation tool before the JOBS Act, when the maximum raise was capped at $5 million.

Nonetheless, companies seeking investment up to $20 million may still have to register their deals at the state level. The SEC’s rules include a coordinated state review process  managed by the North American Securities Administrators Association (NASAA), which could simplify the state-by-state registration process if implemented correctly.

“This mandate, often referred to as Regulation A+, is designed to help enhance the ability of small companies to access capital,” said White. “Small companies are essential to the livelihood of millions of Americans, fueling economic growth and creating jobs.” We couldn’t agree more with this statement. However, while Regulation A+ now offers a new financing option for growing companies, we still need alternative sources of financing for emerging startups seeking to raise far less than $20 million. These companies may still be subject to costly oversight under Regulation A+, especially if the proposed “coordinated review” process doesn’t streamline the system as promised.

The final piece of the JOBS Act—Title III crowdfunding from non-accredited investors—could help fill this gap for small, early-stage funding. However, the SEC has been unwilling to implement Title III crowdfunding thus far. And many experts in the wider startup and investment communities believe that even if the SEC were to enact the Title III rules it’s proposed, the costs of raising capital under Title III would limit its value to most startups.

Whether through Title III equity crowdfunding or some other approach, there continues to be a stark need for alternative financing options for entrepreneurs, particularly those from groups that have traditionally faced greater difficulty raising venture capital funds.

The SEC’s new Reg A+ is an exciting and important new funding mechanism. It will certainly help grow the startup economy and it opens participation in startup financing to the public like never before. But policymakers’ work is not done. They must do more to provide additional alternative pathways for creative and promising entrepreneurs to launch and finance the next wave of innovative startups.

States Pave Way to Equity Crowdfunding as SEC Stalls


As the Securities and Exchange Commission continues to stall in finalizing the long-anticipated crowdfunding and investment rules for startups and entrepreneurs, states have steadily been enacting their own laws to spur intrastate economic activity and open new avenues to capital. Maine is the latest state to pass a new crowdfunding law, which went into effect January 1, joining 13 other states that have passed crowdfunding legislation since 2012. These laws enable entrepreneurs building businesses in their state to raise capital in the form of equity or debt in a company, giving investors ownership in the businesses they choose to support.

Jess Knox, president of Olympico Strategies, a startup consulting group in Maine, believes laws like this one support the growth of the state’s budding innovation ecosystem. The new crowdfunding legislation complements Maine’s Seed Capital Tax Credit, a program designed to encourage private equity investments in eligible Maine businesses. Crowdfunding now opens investment opportunities for all of Maine’s 1.3 million citizens. “There are people who invest in their community in a variety of ways,” said Jess, and equity crowdfunding, “reduces barriers to people to become investors in their community and their state.”

Meanwhile, entrepreneurs and small business advocates in Minnesota are working with state officials to pass equity crowdfunding legislation there as well. The grassroots movement has named the legislative proposal, MNvest, which was recently introduced in the Minnesota state legislature. The group of business and community leaders behind MNvest believes their new law will  “allow ordinary Minnesotans to own a stake in emerging Minnesota businesses.” And from our travels to Minneapolis this fall, we saw for ourselves the thriving community of young technology companies there.

Plenty more states are joining the trend too: Virginia’s House of Delegates passed a bill last week, sending the proposed crowdfunding legislation to the state’s senate. Arizona and Colorado lawmakers recently proposed similar bills and Washington D.C. just authorized its first equity crowdfunding offering after finalizing rules in November.

Ultimately, however, many of these new financial tools are limited in their scope, because most state crowdfunding regulations restrict companies and their investors to the states in which they live and do business. Further, as one corporate lawyer and startup adviser explains, utilizing these intrastate funding tools may preclude businesses from pursuing some of the new funding opportunities provided by the JOBS Act such as general solicitation and a new SEC exemption for raising funds, Regulation A+. While Maine’s new law does allow entrepreneurs to raise money from investors outside the state, the SEC exemption the statute relies on can require issuers to provide the state with lengthy disclosure documents. Thus, while companies may be afforded broader reach, that could come with much higher costs.

Despite the inherent limitations of intrastate funding, these laws demonstrate the appetite for expanding capital opportunities for emerging businesses across the nation. Traditional sources of capital investment are often out of reach for burgeoning entrepreneurs outside the coasts or established tech hubs like Austin. While venture capital soared in 2014, the highest amounts of investment are nonetheless concentrated in these areas. These laws also indicate a willingness to allow middle-income Americans to take part in the growth of our startup economy. Without final rules on the JOBS Act from the SEC, startup investing nationwide remains limited to accredited investors, individuals with a networth of at least $200,000.  

We hope officials in Washington are paying attention to the flurry of state-level activity and take the hint. Capital access is critical to sustaining the startup economy. Their lack of action leaves much-needed sources of capital untapped.

The JOBS Act Isn’t Just About Crowdfunding


Entrepreneurs and investors may have to wait until 2016 for the true equity crowdfunding that the JOBS Act was meant to establish. But the SEC will likely soon finalize rules that open another funding avenue for small businesses. Regulation A+, an amended version of a securities registration exemption referred to as Regulation A, could serve as a viable capital source for small, emerging growth companies. Though it hasn’t been as well-publicized as other provisions of the JOBS Act, startups would be wise to pay attention.

The Securities Act, which lays out the laws governing how companies and investors can buy and sell shares, authorizes the Securities and Exchange Commission to decide which types of securities are subject to onerous registration requirements. Recognizing that smaller, private companies may not have the resources to comply with full SEC registration rules, the SEC created an exemption to its registration rules, called Regulation A, that  allows non-publicly traded companies to file a sort of mini-registration with the SEC and avoid the kind of full-blown disclosure and review that publicly-traded companies undergo. Using Regulation A has other advantages, too: for instance, unaccredited investors can participate in Regulation A offerings alongside accredited investors. (You can read our post on the accredited investor definition here.)

Despite its benefits, the previous version of Regulation A has not been widely used. Before the JOBS Act, companies could raise a maximum of $5 million, but relying on this exemption required issuers to navigate the dozens of varying blue sky laws, state laws that regulate the buying and selling of securities. Though such laws play a needed role in protecting consumers from fraud, the resulting complexity and costs of complying with the different filing and review regulations in every state simply wasn’t worth it for most companies. With the JOBS Act, Congress gave Regulation A (now Regulation A+) new life by raising the offering cap to $50 million. What’s still a sticking point, however, is whether the SEC’s final rules will include provisions that preempt state blue sky laws. That could determine whether this underused investment tool becomes a true financial opportunity for small businesses.

As for equity crowdfunding (outlined in Title III of the JOBS Act), while it remains a promising avenue for startup funding, especially in filling the need for pre-seed and seed capital, the SEC may be nowhere near issuing final rules (despite our emphatic pleas). Industry experts also worry that some of the disclosure, compliance, and financial auditing costs required under proposed SEC crowdfunding rules may ultimately deter companies from using Title III, as other, less costly funding options are available. For now though, without final rules from the SEC, both Regulation A+ and Title III crowdfunding remain unavailable to capital-seeking startups. We and thousands of entrepreneurs around the country still eagerly await the agency's long-anticipated action.

It’s not too late to add your name to our letter urging the SEC to finalize the JOBS Act. While the letter has been sent to the SEC, add your name to show support and receive occasional JOBS Act updates from Engine.


2014 Year in Review — The JOBS Act: What’s Happened and What’s Next for Startup Capital Access


This post is one in a series of reports on significant issues for startups in 2014. In the past year, the startup community's voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world's policy goals in 2014, from net neutrality to patent reform, remain unfulfilled. Stay tuned for more year-end updates and continue to watch this space in 2015 as we follow the policy issues most affecting the startup community.

With overwhelming bipartisan support, the Jumpstart Our Business Startups Act—or the JOBS Act—was signed into law on April 5, 2012, and for entrepreneurs and startup investors, the bill was easily one of the most promising pieces of new legislation to come out of Congress in some time. The JOBS Act updated Securities and Exchange Commission rules dating back to the 1930s to enable growing companies—from seed stage to IPO—to more easily raise capital. In the past two years, parts of the JOBS Act have proved effective and even essential for startups and investors while other portions of the act, notably public equity crowdfunding, continue to languish in the SEC rulemaking process. We’re hopeful that the intent of the JOBS Act—to open new avenues for capital formation and spur great participation in the startup economy—can finally come to fruition in the new year.

At the very least, 2014 proved the JOBS Act’s “IPO On-Ramp” to be a major success, whether or not the bill’s authors can take direct credit. Aiming to revitalize the struggling IPO market of recent years, this provision created special rules for emerging growth companies approaching IPO, including loosening disclosure requirements. In 2013, the rate of IPOs began to accelerate, and 2014 saw the most IPOs since the late nineties tech bubble, including tech startups GoPro, Zendesk, and Grubhub. As Steve Case writes in the Wall Street Journal, taking companies public is significant not only for a company’s owners and investors, but also for the economy as a whole: most job growth at emerging-growth companies comes post-IPO. If the economy continues to recover, we hope 2014’s banner year is just the beginning for the role tech startups can play in reviving the economy.

Another significant section of the JOBS Act lifted the ban on general solicitation, meaning companies can now publicly advertise that they’re raising money. Historically, entrepreneurs could only seek investment from people with whom they had pre-existing relationships. Soliciting investors online or over social media was strictly prohibited. This ban was officially lifted in September 2013 and within the past year, hundreds of startups like Scoot Networks in San Francisco and Dinner Lab in New Orleans have embraced this new approach to finding investors. Anyone on the Internet can now browse through lists of hundreds more startups seeking funding on crowdfunding portals like Angel List, Circle Up, SeedInvest, Flashfunders, and Alphaworks.

Yet compared to traditional capital-raising options taking place behind closed doors, general solicitation makes up an extremely small portion of the offering market. According to the SEC’s private offering filings from September 2013 to September 2014, only around 3% of issuers chose the general solicitation route.

That so few businesses are taking advantage of these new funding opportunities may be the result of poorly defined rules. What is properly considered “general solicitation” and just how businesses must go about verifying that their investors are accredited (a requirement of the act) has not been clearly articulated by the SEC. Further, proposed SEC rules made public in September of last year hint at onerous additional disclosure requirements that would make this offering much less attractive.

Though there is uncertainty surrounding the act’s general solicitation provision, it’s at least seen the light of day. Other highly anticipated portions of the JOBS Act continue to be held up in the SEC rulemaking process. Equity crowdfunding, which would allow for non-accredited investors to buy small amounts of equity in startups, awaits final rules, as does another kind of offering referred to as Regulation A+, a sort of public offering for smaller private companies attempting to raise up to $5 million. Whether the SEC has been bogged down in finalizing Dodd-Frank rules, or they’re taking extraordinary caution and due diligence in crafting crrowdfunding rules, the exact cause of the remarkably long delay is unknown. Whatever the source of the SEC’s inaction, we were frustrated with the SEC and decided to rally the startup and investor community around the issue, telling the SEC that it’s time to act.

In November, Engine crafted a letter signed by over 200 entrepreneurs and investors to the SEC, urging it to finalize rules for equity crowdfunding and Regulation A+ raises, a loud and clear reminder of the widespread community of supporters and stakeholders awaiting the Commission’s action. Nonetheless, the SEC has given no indication of a timeline for issuing rules, though some have speculated those rules may not be released until later in 2015.

Meanwhile, many experts in the investment community believe that even if SEC does finish the job, between the current statute and any additional SEC requirements, equity crowdfunding will be too costly and cumbersome for startups raising just small amounts of capital. Spending the time and money to file tax returns, audit financial statements, and provide detailed accounts of business information could make crowdfunding an expensive undertaking that just isn’t worth the potential rewards, given the other, less costly fundraising avenues available to entrepreneurs. Thus, as the SEC continues to stall, interest grows in returning to Congress to draft better legislation. If the SEC fails to promptly issue rules in the new year, folks in Congress may begin writing a new version of the JOBS Act that addresses concerns with the crowdfunding provisions and limits the SEC’s discretion to issue implementing rules.

In 2015, we hope to see our government step up with a renewed, spirited policy approach that opens new avenues for capital access. Whether the SEC can finally get the job done or Congress can come together like it did in 2012 to pass a revived version of the JOBS Act, policymakers should ensure that promising businesses of any size, and committed investors of any net worth, can contribute to and grow our economy.  


Entrepreneurs and Investors Sign Letter to the SEC


Today, we sent a letter signed by more than 200 entrepreneurs, investors, and members of the startup community to the Securities Commission to tell the agency it’s time it fulfills its statutory obligation and finalize rules to make the JOBS Act a reality. You can find the full text of the letter with its signatories below.

It’s been over two years since Congress passed the JOBS Act, yet much of its promise remains unfulfilled, because the SEC has simply not done its job. The Commission is now an astounding 700 plus days past the statutory deadline to issue rules that will enable equity crowdfunding for companies attempting to raise up to $1 million a year as well as additional capital-raising options for small private companies.

Until the SEC acts, opportunities for entrepreneurs to raise capital and for potential investors to contribute equity to new businesses remain grossly limited. Without these new rules, only a small subset of Americans who qualify as accredited investors can participate in driving capital to thousands of small, diverse, and promising startups across the country. Take Dinner Lab, a New Orleans-based startup: when CEO Brian Bordainick decided to tap into his existing customers and food-lovers as prospective investors, he had to turn half of them away because they didn’t qualify. And Alphaworks, a new equity crowdfunding platform with just a small number of deals, has already had to turn away hundreds of potential investors from contributing to companies on its site.

Capital access is often an entrepreneur’s greatest challenge, especially for businesses who find themselves on the outside the traditional hubs of venture capital and angel investors—whether they’re based in parts of the country where startup communities are just beginning to prosper or they’re simply not well-connected to investment circles. And while 13 states have now taken it up themselves to legalize equity crowdfunding and spur economic activity, these state laws only allow investment within a state’s borders.

The JOBS Act could unleash a new wave of entrepreneurship across the country. Yet without these rules in place, much of the JOBS Act remains an empty promise. We call upon the SEC to make what the JOBS Act set out to do a reality as mandated by Congress over two years ago. It’s time it finalize the rules without further delay.

Engine's Letter to the SEC

Want to join our efforts? You can still sign the letter and learn more about what we're doing at

A New, More Inclusive Approach to Startup Funding


You can also read this post on Medium.

Many immigrants who come to the U.S. to work in technology dream of starting their own companies, but the limited visa system makes this ambition near impossible to achieve. Other aspiring entrepreneurs may be U.S. citizens, but simply can’t incur the risks and costs of starting their own companies without a reliable salary or health insurance. The founders of a new angel fund, Unshackled, rethought what it means to support entrepreneurs who may face these obstacles despite showing great promise. The fund they’ve created will consequently enable a greater diversity of passionate entrepreneurs to take the leap into building their businesses.

“We saw an opportunity to be more inclusive from the funding side,” explained Manan Mehta who, together with his business partner, Nitin Pachisia, launched Unshackled just weeks ago. As experienced and solution-oriented entrepreneurs themselves, Manan and Nitin built an innovative kind of angel fund.

In addition to investing in the startup teams selected for funding, Unshackled will sponsor visas for entrepreneurs already authorized to work in the U.S., but “shackled” to their current employers. Most high-skilled immigrants come to the U.S. on H-1B visas, but if they leave their sponsoring company, they’re no longer eligible to remain in the U.S. This restriction thus bars talented, would-be entrepreneurs from devoting meaningful time to starting a new company. Madhuri Eunni, for instance, is originally from India and worked at Sprint for nearly 10 years. But when she decided to launch her own venture, she uprooted from the U.S. and moved to Toronto where she could more easily and quickly secure a visa.

Visa sponsorship isn’t the only benefit Unshackled offers. They also pay founding teams steady salaries and provide health insurance, aspects that may attract other potential entrepreneurs who would otherwise be unable to pay their student loans, rents, or health costs out of pocket while committing resources to their startups. This unprecedented fund liberates founders from what are debilitating yet unavoidable challenges for many people.

“The funding model has been the same for the last 50 years. How can we modernize it to reflect realities in our country?” asked Manan.

With a $3.5 million fund financed by heavyweights in the investment community, Unshackled plans to work with up to 25 teams of two to three founders over the next couple of years.

Like many other potential investors, Unshackled will evaluate a prospective startup’s founding team, business plan, and prototype in deciding whom they’ll accept. Selected startup teams will then become employees of Unshackled and receive a working space in the Bay Area, a salary that allows them to cover living expenses in the region, and benefits. Unshackled will cover legal costs, visa sponsorships--if and when necessary--and manage banking. And the fund will also connect entrepreneurs to an experienced network of mentors and advisors from the very beginning.

Unshackled is now accepting applications for prospective teams and Manan says they’re already attracting impressive proposals, which doesn’t surprise him. The high-skilled immigrants Unshackled may appeal to, as Manan points out, have “already had to beat out the best in their country,” to even be accepted to study at a U.S. university or acquire one of the very limited visas. They’ve already proven they “have the hustle and the passion to become the best entrepreneurs.”

And data overwhelmingly supports this: in one study the Kauffman Foundation concluded that immigrants are nearly twice as likely to start businesses in the U.S. as are native-born Americans.

Eventually, Congressional immigration reform could both expand and ease the visa process for high-skilled workers and aspiring entrepreneurs. President Obama’s recently announced plans for reform expressly recognize the enormous talent pool among our immigrant population and the economic importance of diversity among entrepreneurs. And one initiative the president has proposed could provide founders with a special exemption from the company sponsorship requirement if founders can prove they’ve created jobs. Yet a true “startup visa” similar to those in other countries starting to attract and retain entrepreneurial talent and innovation will require congressional action.

Meanwhile, Manan and Nitin plan to enable a pool of entrepreneurs who at this point in time may otherwise be excluded from accessing capital and growing their businesses here in the United States.

“I hope we can prove to not only the venture community, but the global community that America can retain the top talent by giving everyone an equal opportunity in innovation,” said Manan.

The SEC Could Drastically Limit the Pool of Startup Investors


It’s no secret that the availability of capital is critical for early stage startups. While entrepreneurs may find some initial financial support by tapping into the generosity of friends and family, once those pockets dry up, they often turn to angel investors—individuals who put their own money into what they see as promising ventures. While a small cadre of wildly successful angel investors have made millions from betting early on companies like Google and Twitter, thousands more across the United States are investing in early-stage startups in dozens of industries every day.

According to the Angel Capital Association (ACA), angels provide 90% of outside equity raised by startups. And in 2013, this group invested $25 billion in 71,000 companies. That’s impressive. But this number could drastically change depending on if and how the Securities and Exchange Commission acts after their review of the accredited investor definition, a status most angels depend on to pursue these private investments.

Whether the Commission should revise the definition of accredited investor was one of the topics at issue during the SEC’s Government-Business Forum on Small Business Capital Formation held last Thursday at its DC headquarters. The Dodd-Frank Act—the 2,300 page financial regulation bill—mandates, among other things, that the SEC undertake a comprehensive review every four years of what some consider an outdated definition.

By current SEC standards that were originally adopted in 1983, an individual is qualified as an accredited investor if she makes over $200,000 in annual income, her household has made over $300,000 in income, or she’s worth at least $1 million in assets, excluding her house. While this income level far surpasses the median household income in the United States, over 7 million individuals or nearly 4 million households still qualify, for now.

One proposal on the table at the SEC suggests adjusting these thresholds for inflation, which means you’d need to make around half a million dollars in order to invest your own money in a startup. According to numbers analyzed by the ACA, raising the income bar for inflation would disqualify nearly 60% of the accredited investor population. A decision like this could significantly reduce the pool of capital available for early stage startups.

This possibility is alarming. So it wasn’t surprising to hear many of the participants from the business community at the SEC’s forum express outright opposition to raising this threshold, not only because it would eliminate existing investors, but also because an income threshold to begin with misses the point. The entire reason for defining this class of people is to protect them from making poor investment choices.

Yet income is hardly an indicator of financial sophistication in undertaking risky investments, especially in the world of novel startups and high tech. By today’s standards it would be illegal for a bio-chemistry PhD making $190,000 a year to invest equity in a biotech startup on a site like Angel List. And if adjusted for inflation, someone making even twice that amount would still be prohibited from investing.

Voices in the startup and investment communities have suggested an alternative set of criteria which could include years of experience, licenses issued by a qualifying test, or relevant degrees to measure investor sophistication rather than only relying on an income threshold that offers virtually no insight on an individual’s understanding of capital markets.

Whatever the ultimate criteria, there’s clear opportunity for the SEC to expand participation in the startup economy, and facilitate capital formation, by allowing those with both interest and knowledge in innovative new companies to support the entrepreneurs building them.

At the end of the forum, attendees gathered to submit recommendations to the SEC as they review the definition. We hope the Commission takes these recommendations seriously. If not, they could end up significantly stifling a community that’s been an enormous asset for the startup economy, instead of expanding opportunity in it.

And whether anybody can invest equity in startups through crowdfunding—well, that’s another question the SEC will have to consider, but rules to regulate the equity crowdfunding market have only been proposed thus far. As far as we can tell, the SEC first wants to figure out who’s accredited. Visit to learn more about the crowdfunding part of the JOBS Act and why we think that’s important, too.

The JOBS Act Could Open Startup Investment to More Americans, but it’s Stuck at the SEC


One of the core promises of the 2012 JOBS Act is that it would open the doors for investment to many more Americans, and—in turn—many more worthy startups. Currently, only a so-called “accredited investor” can make investments in startups, which means that only individuals making $200,000 in annual income over the past two years or with over $1 million in assets, excluding their home, qualify to take part in investing in the startup community. This high threshold unfortunately guarantees that average Americans cannot take advantage of investment opportunity and, in turns, limits the money that makes its way to growing companies.

The JOBS Act intended to change this, but as the new lively podcast, Startup, explains, the JOBS Act has been “stuck” at the SEC for over a year now. The SEC simply hasn’t issued the  rules it’s required to under the law that would make this kind of investment—what’s been called equity crowdfunding—widely accessible. This is why we’re urging the SEC to finish the job Congress set out for them when it passed the JOBS Act in 2012 and allow supporters of great ideas to invest in ventures they care about, regardless of income level.

Take for instance Nadia, one of the podcast Startup’s listeners. As explained more fully in the episode, Nadia reaches out to the podcast producers and offers to invest in their new podcasting startup company (more on that below). It’s only then that the company’s founders realize that, as ridiculous as it sounds, they actually can’t take Nadia’s money.

If you haven’t listed to Startup, a new podcast from former Planet Money and This American Life reporter Alex Blumberg, then find time in your day to check out Startup. The “public radio journalist turned entrepreneur” Blumberg’s newest venture is a podcast network called Gimlet Media, a startup based on the idea that there’s a massive market opportunity in well-produced, journalistic storytelling via podcasts. And fittingly so, Blumberg’s producing a podcast, called Startup, on the efforts behind building this new company. In each episode, he documents the challenges familiar to many entrepreneurs—like raising money. You should listen to the whole series.

In the most recent episode, where we meet Nadia, Blumberg explores financing this new venture utilizing avenues provided by the 2012 JOBS Act.

As Blumberg explains, before the JOBS Act was passed in 2012, the SEC prohibited private companies from publicly soliciting investment. Businesses of any size seeking funding needed to have an established, pre-existing relationship with a defined accredited investor in order to raise money from them, or as Blumberg succinctly concludes, “Only rich insiders could invest in these companies.”

In an age of social media, near seamless access to information, and well, podcasts, this rule was clearly outdated. And on September 23, 2013, the SEC lifted the ban on general solicitation, making the primary intent of Title II of the JOBS Act effective. (Title I of the law addresses how startups pursue IPOs and went into effect immediately after the bill’s passage.)

The law now allows for the mass marketing—posting on social media, a crowdfunding website, or in a podcast—of these more common security offerings. Consequently, Blumberg invites listeners over the air to invest in Gimlet Media: “If you share in our vision, and you want to share in our business,” he asks you to check out their crowdfunding portal to invest. But here’s the thing: even still, you have to fit under the limiting definition of an accredited investor.

So while the JOBS Act originally set out to change the accredited investor requirement and make investing a possibility for a wider range and income level of Americans, this hasn’t yet happened. Experts have proposed rules based on experience or investor education as alternatives, yet there’s been no sign of progress at the SEC. “Today, to become an investor through one of those public solicitations, you need to be the exact same rich person you were before the JOBS Act was passed,” says Blumberg.

Blumberg’s business, Gimlet Media was able to raise $200,000 from accredited investors in the seedround announced on the podcast. Nonetheless, “there are still a lot of regular people who are not allowed by law to invest in our company,” says Blumberg, and for that matter, hundreds of other exciting ventures around the country.

We’re telling the SEC it’s time they issue JOBS Act rules and fulfill the promise of what Congress set out to do when it passed the bill two years ago: booster the startup economy and spur participation from a wider range of Americans. Sign and share our letter at


Why We're Writing the SEC


In 2012, Congress passed the Jumpstart Our Business Startups Act with resounding bipartisan support. For startups, entrepreneurs, and investors, the JOBS Act is easily one of the most exciting pieces of legislation to come out of Congress in the past few years. Among other things, the bill allows businesses—principally startups—to go public more quickly and raise money more easily. And many of its provisions have already had a significant impact on startup growth and capital formation. In the year after the Act passed, the rate of IPOs increased by 58 percent.

When Congress passed the JOBS Act, it recognized that the pre-existing laws dating back to the 1930s no longer reflected today’s financial system. It recognized that the growth of startups is essential to America’s long term economic vitality. And it recognized the potential for new investment platforms to spur participation in the startup economy from a wider range of Americans.

Despite this, in the two years since its passage, much of the JOBS Act’s promise remains unfulfilled. This is not because of bad legislation, but simply because the Securities and Exchange Commission has not done its job.

Two crucial pieces of the Act—1) making it legal to raise capital through online crowdfunding; and 2) allowing for companies to openly seek investment—will only take full effect if the SEC puts forth implementing rules. Such rules will clarify how companies can pursue these new investment channels that are vital to growing our country’s startup economy. 

It’s been over two years since the passage of the bill and months since the comments period has closed on SEC’s proposed rules. Yet, we’ve seen nothing from Commission. Without these rules in place, much of the JOBS Act remains an empty promise.

We now call upon the SEC to fulfill its statutory obligation and make what the JOBS Act set out to do a reality.

On behalf of entrepreneurs, startups, investors, and crowdfunding platforms, we’re asking the SEC to finalize the rules without further delay.

Check out our letter to the SEC, follow #JOBSActNow, and make sure you’re signed up for our email updates

RFP-IT: Making It Easier for Government to Support Startups


Our Federal Government spends a lot of money. I mean, a lot of money. And with that money, they purchase many goods and services. Increasingly, many of those purchases have intersected with technology: technology that makes existing products more efficient, solutions for new and existing problems, new infrastructure to help the government manage its processes, and so on. In fact, the government buys so much stuff, whole industries (yes, plural) have been built with the singular goal of selling to the government. While these processes and industries are largely pretty boring, every once in a while something happens, the system stops functioning properly, and it becomes news.

That is exactly what happened with the mangled rollout of the much-maligned website late last year.

Among the many problems uncovered by the process, we realized that those systems in place to spend the aforementioned sums of money are not always best at finding the most efficient projects, programs, and services to buy. In fact, was just latest high-profile example of the problem. Many, if not most, of the issues faced in federal government procurement are situated squarely in the fact that these laws and regulations represent a different time, and have been made archaic by advances in technology.

Stepping into that breach with an innovative solution of her own is Silicon Valley’s own representative, Anna G. Eshoo. The Democratic Congresswoman, a longtime supporter of the technologies that lead the world from her home district, today introduced the Reforming Federal Procurement of Information Technology (or, RFP-IT) Act which seeks to make these processes more open, easier to navigate, and more accessible to startup companies looking to sell to the Federal Government.

The bill, co-sponsored by a bipartisan coalition of Rep. Eshoo’s House colleagues, has three specific goals. First, it will enhance competition in the marketplace by enabling more small businesses to bid on federal IT contracts without having to spend thousands on compliance costs by lifting the threshold for a streamlined contracting process from $150,000 to $500,000. According to Eshoo’s summary of the bill, “expanding the use of simplified acquisition procedures will shorten procurement lead times and help level the playing field for start-ups and small businesses – a critical factor in an IT marketplace that is characterized by the constant influx of new entrants and rapidly evolving IT products and services.”

Second, the bill takes a number of steps to promote innovation, including codifying the popular Presidential Innovation Fellows program, and asking the General Services Administration to recommend how to slim-down certain procedures.

Finally, the bill moves to ensure more accountability by establishing a Digital Government Office within the Office of Management and Budget, strengthening the existing CIO office in the White House and improving transparency and oversight.

You can read the full text of the (very short!) bill here. We thank Rep. Eshoo and her colleagues for highlighting one of the ways our government functions, and working to bring more efficiency and innovation into the process.


New Legislation Revives JOBS Act Intentions


When I sat in the Rose Garden in April 2012 watching President Obama sign the JOBS Act into law, I remarked to myself, and anyone who would listen, just how far “the Internet” had come in terms of polished political activism and policy coherence in such a short amount of time: The JOBS Act was passed in six weeks. As originally intended, JOBS Act would have opened up new avenues for investment in early-stage startups, providing new ways for entrepreneurs to secure the funding they need to turn their ideas into reality.

But, just two years later, there are many within this community who have been left disheartened by the haphazard implementation of such an important law, and have also become hamstrung by the limitations put on them by the Securities and Exchange Commission -- in stark contrast to the spirit of that legislation.

The crowdfunding for equity provisions have yet to become a reality. And, perhaps more importantly, provisions on general solicitation aimed at making it easier for startups to widen their investor base in a more rational way, as opposed to the previous, wink-and-nod style capital formation, have made the situation worse to the point of being untenable for many early-stage companies, especially those who grow through accelerator programs.

Luckily, news from Washington this morning signals the beginning of a solution we hope will make the JOBS Act work for startups, angel investors and all those who wish to join their ranks. Dubbed the Helping Angels Lead Our Startups, or HALOS, Act (clever, because they’re supporting angels!), this important legislation, offered in a bipartisan manner in both houses,but led by Illinois Democrat Rep. Brad Schneider and Ohio Republican Rep. Steve Chabot, would change the Regulation D rules governing General Solicitation to once allow “Demo Days” to continue once again.

Demoing early stage startups and their products has been a key way for companies to accelerate growth, but the unintended consequences of JOBS Act’s rulemaking at the SEC have complicated the process by which these startups can present their groundbreaking ideas. The current status quo stands in total contrast to the original intent of the legislation, and unfortunately we need a further fix.

Luckily, Reps. Schneider and Chabot have been joined by Sens. Chris Murphy (D-CT), Patrick Toomey (R-PA) and John Thune (R-SD) to provide that legislative fix in the form of the HALOS Act. You can read the (short) bill in its entirety here. We encourage you to reach out to the co-sponsors and thank them for their foresight here, as well as to your own representative and Senators urging them to pass this important legislation.

California Rights Course on Small Business Tax

California Rights Course on Small Business Tax

California Governor Jerry Brown signed a new law that amounts to a big victory for startups and their investors. Assembly Bill No. 1412 reverses a 2012 adjustment that would have resulted in massive retroactive taxes on investors and small business owners. Engine’s estimate on the new rule's impact on startups empowered advocates looking to overturn the adjustment with a data-rich perspective on future investment, business, and employment growth.