Small Tech companies have gained a significant victory that will streamline and lessen the costs of obtaining equity capital. Yesterday, the Senate approved the JOBS Act by a vote of 76-23, following its overwhelming passage by the House of Representatives just last week. However, before passage, the Senate did tack on an amendment (by a vote of 64-35) that would provide more investor protections for crowdfunding while increasing the individual investment limitations:
- Individuals earning $40,000 or less would be permitted to invest 2% of gross income;
- Individuals earning more than $40,000 and up to $100,000 would be permitted to invest 5% of gross income; and
- Individuals earning more than $100,000 would be permitted to invest 10% of gross income up to a maximum investment of $100,000.
Because of the Senate amendment, the bill now will have to return to the House for a vote, before going to the White House. At this writing, the House is expected to pass the amended legislation next week, and the White House has indicated that the President will sign this bill into law.
Other provisions included in this crowdfunding amendment include:
- Companies would be required to certify/disclose certain information:
Companies would be required to provide accurate information, including due diligence protection. Funding portals would be subject to a streamlined registration process. A three-week period would be required between listing and closure to allow time to identify any possible fraudulent activity. Investment promoters would be required to disclose earned fees.
- Companies raising less than $100,000 – The CEO would be required to certify the accuracy of the financials.
- Companies raising $100,000 and up to $500,000 – A CPA would be required to certify the accuracy of the financials.
- Companies raising over $500,000 – The company would be required to make their audited financials public.
And now, with the expectation that the crowdfunding and other access to capital provisions will be enacted shortly, the long road to implementation is just beginning. Regulations implementing these changes will certainly take a number of months, most likely a year or so. And, while the intent is to simplify and lessen the cost of equity funding, there will still be some compliance and administrative burdens – just not as much. But in the long term, we expect the provisions in this JOBS Act will help many small tech businesses to grow, prosper and create and sustain high-paying jobs.