Opinion: SEC bureaucracy is threatening to quash an innovation renaissance
By Mark Hatch,
If you’ve been reading about the Jumpstart Our Business Startups (JOBS) Act that President Obama signed into law back in April, you know that it’s intended to encourage funding of small businesses by easing various securities regulations. One of the key elements of this new law is a proposal, which is now under consideration by the U.S. Securities and Exchange Commission, that would end the ban on general solicitation and advertising for start-ups seeking investors.
This is a game-changing proposal that could spawn an innovation renaissance by allowing companies like mine – TechShop, a chain of workshops that gives people access to high-end tools and equipment – to advertise in order to find qualified investors.
But, just as Congress cleared the way for an unprecedented boost for entrepreneurs, the SEC is threatening to derail this legislation by implementing unnecessary and bureaucratic rules that would greatly diminish the impact of this new employment-boosting law.
Understandably, it’s difficult for SEC administrators who are charged with eliminating fraud and reducing risk to get excited about restructuring a set of rules put into place in 1933. For them, this 80-year-old law has represented the fundamental underpinnings of fraud protection for several generations. There is also enormous pressure from internal groups, state regulatory agencies and others wrapped in fear and uncertainty to block this potential source of growth because of their concerns about risk.
But here is something we do know: New firms create the majority of new jobs, according to research from the Kauffmann Foundation. Blocking startups from letting accredited investors know about their new ideas is an unnecessary and bureaucratic barrier to growth.
Thankfully, both political parties and the president agree that this has to change. However, it is within the SEC’s authority to establish onerous requirements around one outstanding issue – the proposal to take “reasonable steps to verify that purchasers of the securities are accredited investors.”
There is already a “reasonable” method, and it has been working just fine for years. It even works in the few states that already allow various accredited investor solicitation. It’s a form that enumerates what it takes to be an accredited investor and asks investors to “self-certify” that they understand the requirements.
However, the SEC questions whether an investor’s assurance that he or she is accredited should meet its threshold for credibility. Really? It works in California.
We are at an inflection point in history. The ability to innovate, create and launch new multibillion dollar companies is upon us. An irresponsible restriction, enacted out of fear, is no way to greet the possibilities of this new day.
Mark Hatch is CEO of Menlo, Calif.-based TechShop, a membership-based community of workshops that provides equipment and instruction to inventors, builders and entrepreneurs.