House Republicans are trying to recreate the success of the JOBS Act, two years after its passage.
The Jumpstart Our Business Startups Act, intended to reduce capital costs for startups by deregulating some aspects of securities law, was one of the rare bipartisan legislative efforts of the Obama era that wasn’t carried out under the threat of a default or a government shutdown.
With support from Silicon Valley, the JOBS Act -- not to be confused with President Obama's American Jobs Act stimulus proposal -- passed the Republican House and Democratic Senate, and was signed into law by the president in April 2012. It's best known for legalizing “crowdfunding” as a way for businesses to raise money and offer shares, as well as for reducing the requirements companies face before they go public.
On Wednesday, a House Financial Services subcommittee held hearings on seven draft bills meant to further limit barriers to small businesses trying to raise money. The lawmakers are referring to the bills, collectively, as the JOBS Act 2.0.
Mostly, the bills are about changing disclosures required under securities law of small businesses trying to raise capital, and don’t include the exciting provisions of the JOBS Act that advocates said would lead to a boom in innovation and critics warned would result in investors getting ripped off.
Rep. Scott Garrett, the New Jersey Republican who is chairman of the Capital Markets and Government Sponsored Enterprises Subcommittee, said that even after the JOBS Act, startups and small businesses struggle to access capital markets. “The costs to these companies of going — and staying – public remain unacceptably high," he said.
Last week, venture capitalist and AOL co-founder Steve Case, a prominent booster of the original JOBS Act, published a Wall Street Journal op-ed labeling the measure a “success.”
The key piece of evidence, in Case's estimation: A 70 percent increase in initial public offerings in 2014, as reported by Reuters. There have been 119 IPO filings in 2014 so far, according to Renaissance Capital, compared with 256 for all of 2013 and 140 for 2012.
The most high-profile instance of the JOBS Act's changes to securities law was Twitter's “secret” IPO last fall. The social media company made use of a provision that allows businesses with less than $1 billion in annual revenue to prepare for an IPO without making the decision public. Other tech companies and startups, including the action camera company GoPro, also have used this provision.
Members of both parties tried to take credit for the JOBS Act when it was passed. But the dynamics that led to the swift passage of the bill are unlikely to replay this time around.
In fact, the JOBS Act almost immediately lost some of its bipartisan appeal when consumer advocates joined unions in expressing concerns that the law would expose unsophisticated investors to fraud.
Furthermore, some of the law's provisions, including the crowdfunding policy, have yet to be put into place by the Securities and Exchange Commission, which is not expected to finish rulemaking until later this year.
Columbia Law School professor John Coffee, a witness at Wednesday’s hearing, warned that the lawmakers were moving toward a second JOBS Act “without any serious evaluation of the impact” of the first.
“On balance, the JOBS Act may have had only modest impact, and the proposals that are being considered today will likely have less,” he said.