54 Pages Posted: 6 Aug 2015 Last revised: 25 Mar 2018
Date Written: August 4, 2015
The Jumpstart Our Business Startups (“JOBS”) Act of 2012 intends to “help entrepreneurs raise the capital they need to put Americans back to work and create an economy that’s built to last.” The goal is to “democratize startups” by making capital available to diverse entrepreneurs in new geographies. Yet the net effect of securities regulations and market conditions is the opposite. Startup companies are encouraged to stay private so capital is consolidating in large, mature firms instead of recycling into new startups. Evidence of consolidation is that once-rare “Unicorns” (billion-dollar startups) now number over 111. More money is going into huge private companies, yet total venture capital investment is flat, so less is going to new startups. This could stall out the innovation economy.
Democratizing startups requires safe-harbor exemptions from securities regulations for both original issuance and resale of stock, but securities regulations do not permit resale on exchanges. This Article proposes “Rule 144B,” a regulatory provision that could be enacted without an act of Congress, to permit transparent web-based venture exchanges with fraud-prevention intermediaries termed “independent analysts.” This Article answers the SEC’s call for rulemaking comments and informs Congress’s new work on JOBS Act 2.0.
Keywords: venture, capital, finance, entrepreneurship, democratizing, startups, JOBS Act, securities, regulations, law & economics
JEL Classification: G1, G10, G14, G18, G2, G24, G3, G30, G31, L2, K20, K22, M1, M13, M2, O16, P1
Suggested Citation: Suggested Citation