Angel Investing | Business Funding | Crowdfunding | Startups

With Title III Still Pending, Startups Struggle With Funding

By | June 23, 2015


Arguably, labor markets are stronger today than they have been in the past 20 years, but expectations of financial security for many of us are virtually non-existent. As ZH readers are no doubt aware, despite job numbers being “up” 280,000 last May, and average annual wages increasing 2.3 percent, Americans are still having a difficult time finding full-time work that pays a livable wage.

Many of the jobs that have been created since 2009 have been part-time or temporary. Since the recession, companies haven’t invested in equipment (software, machinery, etc.) that would allow for more productivity; the funding isn’t there. So, these companies are forced to hire cheap part-time labor which ends up looking like job growth, but puts a vast number of people in a position of constant underemployment.

Courtesy of the Kauffmans we know that about 85% of job creation comes from the startup world, which, per the paragraph above this one, struggles with funding. Title III of the JOBS Act (originally passed ca. 2012) was meant to fix that by letting your average Joe invest in startups but final rules are still pending.

How pending?

The proposed rules and call for comments re: T3 were published in October 2013.

So, pretty pending.

On the upside, the house (link to pdf just released comments chastising the SEC for not putting forth rules that make it “super-duper easy” (paraphrase) for companies to raise money. Should the SEC heed these comments and start rewriting the rules, we could be looking at another couple of years before actual home-grown companies have access to capital at all, never mind how easy it is for them to get it which would seem to defeat the point of the original legislation all together.

From the report:

Crowdfunding.—The Committee is concerned that the SEC’s proposed crowdfunding rule by the SEC will be inoperable. The Committee believes that the Commission has an obligation to consider the effects of the proposed rule upon the efficiency, transparency, and affordability for small companies and investors seeking crowdfunding offerings. Impairing or restricting the use of crowdfunding offerings could potentially result in limiting small businesses from securing much needed, early-stage capital formation and liquidity. The Committee believes that before the final crowdfunding rule is promulgated, the Commission should ensure that the regulations neither disproportionately stifle small company growth, nor create barriers to entry for investors, thereby hindering diversified investment options. Specifically, the final rules should carefully consider how the proposed changes would affect the following: (1) the burden and costs associated with providing audited or reviewed financial statements; (2) the harm caused by increasing liability for the platforms, portals, and intermediaries’ and thereby their ability to curate and effectuate crowdfunding offerings; (3) restricting the economic interests of the intermediaries from revenue derived from crowdfunding offerings; (4) burdensome disclosure report requirements; and (5) the investors and companies’ capacity to aggregate and diversify through investment vehicles to heighten investor and issuer protections.

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