Two years ago tomorrow, AOL co-founder Steve Case stood behind President Obama in the White House Rose Garden as the Jumpstart Our Business Startups Act -- or JOBS Act – was signed into law. Case was optimistic about the legislation then and he is optimistic about its potential, still. He admits, though, that there have been a few setbacks that are holding up innovators in this country.
Part of what encouraged Case was the spotlight the legislation put on startups. The JOBS Act is a combination of six pieces of legislation designed to make it easier for small businesses to access capital. In particular, the law paved the way for startups -- particularly those startups outside of major angel investor circles like New York City and Silicon Valley -- to pursue alternate avenues of raising money.
“Two years ago, I was delighted that basically entrepreneurs were being recognized for the role they were playing in building the economy by the President of the United States,” Case told Entrepreneur.com. The billionaire entrepreneur who co-founded AOL in 1985 was present at the law's signing because of his roles with the National Advisory Council on Innovation and Entrepreneurship and the President's Council on Jobs and Competitiveness.
Related: The JOBS Act: What You Need To Know
Case was also eager to see the JOBS Act signed because it represented a bipartisan effort to move legislation through Congress at a time of intense gridlock. “It was an example of how things, I think, should get done around Washington where people come together, find a middle ground, compromise and get things done,” said Case.
Since the signing, Case says he has been pleased with the implementation of certain portions of the JOBS Act and less so with others. Here’s a look at his views on the law's hits and misses and what ought to be next on Washington’s agenda.
For the win: IPO rule changes. One provision of the JOBS Act gives “emerging growth companies” -- which the law defines as those businesses with total gross revenues of less than $1 billion in their most recent fiscal year -- a temporary relief from SEC regulations as they begin the process of going public. The goal of the piece of legislation, called the “IPO on ramp,” is to make it easier for companies to go public. Case says it’s working.
“Right now we are having an IPO-boom that we haven’t seen in a decade and while it’s not entirely related to the JOBS Act, clearly, the research suggests the JOBS Act has been a big contributor to that,” says Case. “The IPO side of things is actually better than I would have anticipated two years ago: There is more momentum there, more IPOs there, a much stronger market.” That’s critically important for the U.S. economy overall, he notes, because the majority of jobs provided by businesses are created after they go public.
Slow on the draw: The SEC. Title 3 of the JOBS Act legalized equity crowdfunding among unaccredited investors, but required that the Securities and Exchange Commission write rules for the new funding mechanism before entrepreneurs and investors could participate. The SEC has blown through numerous deadlines and is still yet to finalize equity crowdfunding rules. “The SEC has been slower than I think they should have been in terms of finalizing the crowdfunding provisions, and hopefully those will be finalized soon,” Case says. “The fact that the rules have yet to be finalized has deprived a lot of entrepreneurs of the capital they need to get started. I think that’s a disappointment.”
Case is not without sympathy for the SEC. Investor protection advocates have been making a lot of noise about the SEC doing what it can to ensure that unsophisticated investors are not swindled out of their savings. The fear of fraud is overblown, according to Case. “People are able to use the Internet to learn about companies, but also be part of a community, and there are ways to build in trust to these systems,” says Case.
The staff of the SEC is being obsessively cautious in the face of these fears, Case says. “Of course, everyone wants to get it right, but sometimes it is time to get it done.”
What Washington needs to do for entrepreneurs next: Entrepreneurs have not always been eager bedfellows with politicians, but going forward, Case says there are a handful of issues that lawmakers need to address to improve U.S. entrepreneurs' ability to compete globally. In order of priority:
- Immigration reform. “If we are going to remain the most entrepreneurial nation, we need to win the global battle for talent. We can’t do that if we don’t reform our immigration laws,” says Case. “We are losing ground every year and it is of great concern.”
- Access to capital. While the JOBS Act took significant steps forward in modernizing the laws governing access to capital in the U.S., Case says more ought to be done to encourage the flow of capital to startups.
- Patent reform. Especially in the more tech-centric entrepreneurial community, U.S. patent laws are outdated, says Case. “We need to have the right balance between creating incentives for the people that are innovating so they will invest in R&D, while also not stifling innovation and hurting the potential of startups.” Case advocates for erring on the side of protecting the role of startups in patent reform.
- Investment incentives. To incentivize investment, many of America's global competitors give investors a tax-free capital gains window when they invest in startups. The U.S. had such a provision in the Recovery Act passed during the Great Recession, but those tax provisions have since expired. Case says they ought to be reinstated.
- Cut red tape. Across the board, the U.S. should support entrepreneurship by having a “lighter touch” in the amount of regulation it requires.