State of Innovation

Patents and Innovation Economics

JOBS Act a Small Step in Right Direction

The Senate passed the JOBS (Jumpstart Our Business Startups) Act, H.R. 3606 and President Obama is likely to sign it.  The goal of the legislation is to reduce some of the regulatory burdens in raising capital for startups.  The Act exempts small firms from Section 404 of the Sarbanes-Oxley Act for up to five years according to Wikipedia.  It also includes some of the crowdfunding ideas of HR 2930.  This legislation is a positive step in the right direction.  Unfortunately, it is a pebble in Sea of laws, regulations, and taxes strangling technology startups in the US.  My guess is that the reason this legislation is passing has little to do with what is good for the country, but what is good for Wall Street banks.

In my book The Decline and Fall of the American Entrepreneur I show that every academic study of the effectiveness of our Securities Laws shows that they have been either totally ineffective at protecting investors or worse counterproductive. The real answer to the lack of funding for start-ups would be to repeal all Securities Laws and Regulations except the common law requirements under contract and tort law.

Advertisements

March 22, 2012 Posted by | -Economics, Innovation, Regulation | , , , , | 3 Comments

H.R.2930 Crowdfunding Passes House

According to an article, entitled House Passes First Crowdfunding Legislation the House has passed a bill modifying the securities law to allow “crowdfunding.”  The proposed legislation appears to be a fairly well crafted piece of legislation, which is quite unique for Congress lately.  The bill is less than 2000 words and does not appear to have any special interest provisions.  The Bill would allow companies to raise up to $1M online within a year without audited financial statements and up to $2M online with audited financial statements.  Another positive of the Bill is that it does not require investors to be accredited to invest.  However, it requires that no one investor contribute more than $10k or 10% of their income, whichever is less.  The Bill appears to require a number of statutory warnings about how risky it is invest in the company.  It makes it difficult for an investor to sell their stake in the company within a year of the purchase.  It also does not require a broker to be licensed with the SEC to sell shares in the company.  However, it does require someone acting as a broker to provide information to the SEC.  The SEC could expand these requirements under its rule making authority.  In general, I consider this good news for start-ups.

The downside of this legislation is that it is a band aid to fix the problems with our Securities Laws.  Every academic study of the effectiveness of our Securities Laws shows that they have been either totally ineffective at protecting investors or worse counterproductive.  The real answer to the lack of funding for start-ups would be to repeal all Securities Laws and Regulations except the common law requirements under contract and tort law. 

January 17, 2012 Posted by | -Economics, Innovation, Regulation | , | Leave a comment