Subcommittee Explores The Impact of SEC Crowdfunding Rule-Making on Job Creation

Proposed Rules, As Is, Choose Overregulation Rather Than Sensible Approach

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Washington D.C., Jan 16 | DJ Jordan, Joel Hannahs (202-225-5821) | comments

The Small Business Subcommittee on Investigations, Oversight and Regulations, led by Rep. David Schweikert (R-AZ), today held a hearing examining crowdfunding’s job creation impact and how the Securities and Exchange Commission’s (SEC) proposed rules are expected to affect both the crowdfunding model and small businesses seeking to use it as a source of capital.

The SEC recently issued proposed rules implementing Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012, which will place restrictions on crowdfunding investment and add new compliance requirements for both small businesses and the web portals and intermediaries that connect entrepreneurs and investors.
 
“Last week’s abysmal unemployment announcement was a stark reminder that we are still dealing with a slowly growing economy and a serious unemployment problem,” said Chairman Schweikert. “Crowdfunding presents new capital solutions that can really help small businesses grow and create jobs. During this rule-making process, the SEC has an opportunity to establish a usable regulatory framework for entrepreneurs seeking capital. Unfortunately, the rules, as currently proposed, choose overregulation instead of a sensible approach. Today, we heard real solutions from industry experts to make the rules more workable for small business, and I hope the SEC listens to their concerns as they finalize the rules.”

On April 11, 2013, Rep. David Schweikert (R-AZ) led the 113th Congress’ first hearing on the JOBS Act. The hearing focused specifically on the sluggish implementation of JOBS Act rule promulgation by the SEC. The JOBS Act package included two of Schweikert’s bills, the Small Company Capital Formation Act (H.R. 1070) and the Private Company Flexibility and Growth Act (H.R. 2167).
 
This hearing also comes a day after the release of a study showing that crowdfunding could help jumpstart job creation and growth among small businesses. The Crowdfund Capital Advisors study, “How Does Crowdfunding Impact Job Creation, Company Revenue, and Professional Investor Interest?”, showed 48 percent of companies said they intended to use crowdfunding proceeds to hire new staff. The study also showed that crowdfunded companies increased quarterly revenues by an average of 24 percent post-crowdfunding, and equity-based crowdfunding companies increased revenue by 351 percent.

Materials from the hearing are available on the Committee’s website HERE.

Notable Quotes:

Jason Best, Principal of Crowdfund Capital Advisors in San Francisco, CA said, “There are still many opportunities to strengthen and improve these draft rules and an opportunity to use new technologies and services to enable better oversight than has ever been available before; but it is up to the SEC to continue working with the public and industry as it finalizes its rules and Congress to determine what are the best actions to accelerate economic growth and create jobs in the United States.”
 
Daniel Gorfine, Director of Financial Markets Policy at the Milken Institute in Washington, DC said, “The JOBS Act employs a holistic approach to promote an enhanced and well-functioning capital-access pipeline for American businesses at each stage of their development. To fulfill this objective for startups and small businesses, the SEC – subject to the constraint of specific requirements set forth by Title III of the law – should foster the development of “crowd investing” by minimizing costs and constraints associated with this new capital-raising tool, while simultaneously limiting downside risk to investors through an emphasis on investor caps. This approach will allow for the evolution of this market innovation and the related opportunity to assess its central hypothesis: that in an interconnected Internet-centric world there is “wisdom in the crowd.”

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