One big thing that excited lots of entrepreneurs and investors about the JOBS Act was the prospect of investor crowdfunding--the idea that small businesses could go online, make their pitches, and receive direct investment from accredited investors around the world, quickly.
So when the bill was signed into law in April, lawmakers drafted up a clause, "Title II," which would lift the ban on "general solicitation"--the legal hurdle that had prevented this sort of crowdfunding in the past. By lifting general solicitation, business owners could start using the Web to find new avenues of funding.
But to protect both investors and entrepreneurs from fraud, the law mandated that Title II also include rules that would prevent non-accredited investors--as well as shady entrepreneurs--from using crowdfunding. The Securities and Exchange Commission was put in charge of writing up those rules.
"The law was passed in April, and it had 90 days to be implemented," Rory Eakin, co-founder and COO of CircleUp, a San Francisco-based crowdfunding start-up that launched in 2011, told me Thursday. "It was due to be implemented in early July, and we're still waiting."
Things can move slowly in Washington. Start-ups don't like waiting.
Eakin was calling from Washington, D.C., where he and several other entrepreneurs traveled to Capitol Hill to urge SEC lawmakers to establish those rules, so crowdfunding platforms could finally legally begin to launch.
In a panel titled "The JOBS ACT: Importance of Prompt Implementation for Entrepreneurs, Capital Formation, and Job Creation," Eakin presented testimony called "The Urgent Need for Swift Implementation of the Jobs Act." In it, Eakin pushed SEC lawmakers establish guiding rules so that no time is wasted "providing more access to capital for growing businesses, more information and choice for investors and...more jobs for Americans."
Eakin's testimony also outlined how crowdfunding portals such as CircleUp will leverage investment networks outside traditional investment communities, including Silicon Valley, New York, and Boston.
"To be clear," Eakin said, "lifting the ban on general solicitation is not about funding the next high-tech company in Silicon Valley. Those markets exist already within decades-old, robust networks of investors and venture capitalists. This is about spurring entrepreneurship and unlocking small business growth opportunities in every corner of America--including in cities and towns that many of today's entrenched investors would not likely consider."
Eakin was not alone in the meeting. Alison Bailey Vercruysse, the founder and CEO of 18 Rabbits, which makes granola bars, presented testimony about the difficulties of raising venture capital through traditional networks.
"Starting a small business in America should not feel like starting a fundraising business," she said. "With the lifting of the ban on General Solicitation, entrepreneurs like me, and some of you, can focus on running and building the business instead of using that valuable time to raise money."
Naval Ravikant, the founder of AngelList, a networking site where entrepreneurs and investors can discover one another and connect, also presented his thoughts. In addition to vetting investors, general solicitation rules will also put into place tight verification standards on entrepreneurs to ensure no fraud takes place. Ravikant acknowledged that implementing these standards was important, but beseeched lawmakers not to over-complicate the rules for business owners.
"Rules that seem obvious to us may confuse and distract entrepreneurs," he said.
But perhaps most importantly, like Eakin, Ravikant was emphatic that the SEC must act quickly.
"I encourage the SEC to move with all due speed and clarity," Ravikant said in his testimony. "In our fast-moving tech start-up world, we are witnessing the premature launch of businesses that provide crowdfunding-like services of questionable legality, putting both investors and companies at risk. This puts competitive pressure on the others--by our count there are over 100 companies waiting in the wings to try this and may be tempted to jump the gun. Delays in enforcement or clarity about when regulations are enacted will feed this fire."