There's a rather crucial point that I suspect is being missed in various consultations about the Jobs Act, most especially over the way that it relaxes certain of the guidelines about who can raise investment money under what conditions of oversight, regulation and disclosure. As an example here we've got a convicted stock fraudster stipulating that the relaxing of the rules will be a goldmine for those that, unlike his previous self, have not abandoned criminality and gone on the straight and narrow. Make sure that you will not involve in investment fraud , because if you are involved, it'll really cost you a lot.
As I have discussed before I think there's a major point that is being missed here. Yes, I'm in agreement that too much capital can be as damaging to a young company as rather too little , yes, I agree that there'll be a rise in investment fraud and yes, I even agree that less regulation doesn't automatically mean more capital for investment.
But I'd disagree (as I have about similar changes in the UK, although there they have just been ones of practice, not legal structure) that given where we are starting from then the general end result of the new rules will be positive. This is down to the fact that we need to account not for just the varied and easier way that corporations will be well placed to get finance but for the larger number of corporations that may get finance.
There's some engaging work produced under the aegis of Dean Baker (who I disagree with but respect) and Mark Weisbrot (ditto and without the respect) from the CEPR. They link the marked absence of small enterprise in the States to the issue of health care: something I will believe but dont think is the entire story. I think that at least part of the tale is the extraordinary difficulty of raising equity capital in the US.
This should be qualified: if you have a ground-breaking idea that might grow into a major company there's nowhere simpler in the world to get the money you want to try it out. Nonetheless it is very tricky to get the $50,000 to $500,000 amounts to form a little niche company. The rationale is the regulatory value of getting approval to offer equity. In my native UK there's no oversight at all (just the usual we intend to chase you later if it is fake) on asking whoever you like to invest in your bright glossy new company. It isn't straightforward to persuade anybody, that is beyond doubt, but one or two months back I raised $100,000 for a business adventure at a regulatory price of $zero. This is pure risk capital, the financing of some prospecting (both geographical and technical, in the sense of extraction technologies) for one of the rare metals.
It is, I suspect (and I remain open to being convinced otherwise) this sort of fundraising which is extremely tricky in the US: and permitting the crowdsourcing of such funding over the internet will make it much easier.
Now, I'm in agreement, as shown, that there's also going to be more investment fraud because of relaxing these rules. But then my reply to that is: so what? Sure, an increase in fraud is a societal cost of this change in the rules: but what about the societal benefit that might also emerge? The making of a doable equity funding source for the tiny and even micro-business sector the US does not actually have.
I'm able to imagine that there will be one or two apps producers, probably even more commercial versions of the inventive endeavours now funded at Kickstarter (why not kick in a few hundred $ along with a couple of hundred others to get a band tour or album off the ground?) that benefit. But I have a feeling (and again, please do try and convince me otherwise) that the major economic benefit is going to come from the way that small 2 and 5 people companies can get financed. Plumbing businesses, aircon ones, ink jet cartridge re-filling ones, maybe a funeral home or 2, just the sort of tiny, independent, producing and service businesses which the US is particularly short of when compared globally. The bread and butter of the economy if you like and an area and size of business that actually does, for regulatory reasons, find it troublesome and expensive to raise stock holdings at present.
As I have discussed before I think there's a major point that is being missed here. Yes, I'm in agreement that too much capital can be as damaging to a young company as rather too little , yes, I agree that there'll be a rise in investment fraud and yes, I even agree that less regulation doesn't automatically mean more capital for investment.
But I'd disagree (as I have about similar changes in the UK, although there they have just been ones of practice, not legal structure) that given where we are starting from then the general end result of the new rules will be positive. This is down to the fact that we need to account not for just the varied and easier way that corporations will be well placed to get finance but for the larger number of corporations that may get finance.
There's some engaging work produced under the aegis of Dean Baker (who I disagree with but respect) and Mark Weisbrot (ditto and without the respect) from the CEPR. They link the marked absence of small enterprise in the States to the issue of health care: something I will believe but dont think is the entire story. I think that at least part of the tale is the extraordinary difficulty of raising equity capital in the US.
This should be qualified: if you have a ground-breaking idea that might grow into a major company there's nowhere simpler in the world to get the money you want to try it out. Nonetheless it is very tricky to get the $50,000 to $500,000 amounts to form a little niche company. The rationale is the regulatory value of getting approval to offer equity. In my native UK there's no oversight at all (just the usual we intend to chase you later if it is fake) on asking whoever you like to invest in your bright glossy new company. It isn't straightforward to persuade anybody, that is beyond doubt, but one or two months back I raised $100,000 for a business adventure at a regulatory price of $zero. This is pure risk capital, the financing of some prospecting (both geographical and technical, in the sense of extraction technologies) for one of the rare metals.
It is, I suspect (and I remain open to being convinced otherwise) this sort of fundraising which is extremely tricky in the US: and permitting the crowdsourcing of such funding over the internet will make it much easier.
Now, I'm in agreement, as shown, that there's also going to be more investment fraud because of relaxing these rules. But then my reply to that is: so what? Sure, an increase in fraud is a societal cost of this change in the rules: but what about the societal benefit that might also emerge? The making of a doable equity funding source for the tiny and even micro-business sector the US does not actually have.
I'm able to imagine that there will be one or two apps producers, probably even more commercial versions of the inventive endeavours now funded at Kickstarter (why not kick in a few hundred $ along with a couple of hundred others to get a band tour or album off the ground?) that benefit. But I have a feeling (and again, please do try and convince me otherwise) that the major economic benefit is going to come from the way that small 2 and 5 people companies can get financed. Plumbing businesses, aircon ones, ink jet cartridge re-filling ones, maybe a funeral home or 2, just the sort of tiny, independent, producing and service businesses which the US is particularly short of when compared globally. The bread and butter of the economy if you like and an area and size of business that actually does, for regulatory reasons, find it troublesome and expensive to raise stock holdings at present.
About the Author:
The work above is all about securities arbitration lawyer and finra attorneys . The writer is Sheena Ostertag.
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