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How The JOBS Act Can Help Spur Economic Growth

This article is more than 10 years old.

Guest post written by Brian Gentile

Brian Gentile is CEO of Jaspersoft, a San Francisco-based business intelligence software company.

Innovation is the birth of an idea in the right environment. While Silicon Valley has an endless stream of ideas, we have the responsibility to ensure the environment remains healthy as well. A startup CEO is focused on striking the right balance between the two each day. It’s what we do.

Fortunately, the U.S. House of Representatives recently passed an important bill with broad bi-partisan support intended to shape the environment for innovation and growth. The JOBS Act, also known as H.R. 3606, is now quickly coming to a vote in the U.S. Senate. The troubling fact is that both of California’s Senators and many from nearly a dozen other states have not yet answered the call to support our nation’s most innovative entrepreneurs.

Government regulation done correctly should help young companies continue to grow while satisfying the disclosure and reporting needs of the investment community, private or public. The JOBS Act will help the tech entrepreneurs of Silicon Valley continue to create growth, jobs and opportunity for our employees. Especially in this troubled economy, the bias of any new regulation must be toward growth. Passage of the JOBS Act can help create more jobs and growth, by improving access to capital for small businesses and tailoring rules intended for big corporations to meet the needs of emerging growth companies before and after they enter the public markets.

Broader access to private funding via "crowdsourcing” means more good ideas will find funding, even if they are not on the buzzword radar of the venture capital community. Some of these ideas will become valuable companies and create transformative products and technologies. Many will fail. While the bill includes investment caps and guardrails to limit the downside to less sophisticated investors, the broader capital participation fostered is simply consistent with American ideals of ownership and engagement. Many entrepreneurs would thrive in this more amiable, participative funding environment – creating more jobs along the way.

Limited disclosure rules for private companies when the shareholder count exceeds 500 allows the playbook to stay in the locker room and competitors to not gain undeserved access to proprietary information. Just because a private firm has 501 shareholders (which can happen given the longer time now required to fund and grow a company), doesn’t mean that company should be subject to similar reporting and disclosure rules as a much larger public company. One of the advantages of being private is being able to target financial and strategic update information just to those investors who have secured this as an investment right.  Reporting more broadly before being ready is costly and places a private firm on an uneven playing field with likely larger rivals, surely costing jobs along the way.

Creating a new class of “emerging growth company,” and graduating into full Sarbanes-Oxley compliance over five years (or $1 billion in revenue) after an initial public offering, will provide a necessary and lower-cost on-ramp for creating and documenting the internal controls and standardized reporting required as a public company. This provision is not about limiting financial disclosure. Any mature tech start up near a public offering would have already been through at least several years of annual audits with accredited accounting firms. Rather, this provision is about ramping the documented internal control procedures and standardized reporting requirements that can be costly and distracting during the post-IPO “honeymoon” period. During this delicate time, the company’s focus, energy and funds are best spent scaling operations, satisfying more customers and driving the growth on which new public investors are now counting. These are the activities that lead to more assured company and job growth after a public offering. In addition, it allows for more logical and continuous communication with the SEC and potential public investors, all within the confines of existing regulations meant to prevent the abuses of the past.

For Silicon Valley to remain the technological growth engine that continues to awe the rest of the world, we must balance the need to regulate and report with the even more dire need to grow and create jobs. The broad, bi-partisan support the JOBS Act has built provides testimony that this message is being heard in Washington. My hope is that Senators representing many of the high-growth regions in our economy will act now to improve regulations to better fit the innovative companies of today and the jobs they will create tomorrow.