Here is the most insightful comment I have heard to date about the JOBS Act (from New York Times story “Wall Street Examines Fine Print in a Bill for Start-Ups”:
“It’s almost an experiment of sorts,” said Richard Roberts, a former S.E.C. commissioner who now represents companies affected by the JOBS Act. “If any parts are a disaster, Congress can change it.”
That is exactly right — which is why I am both excited and worried about the new law. I am excited because the bill offers some new opportunities for financing innovation. I strongly support the concept of crowdfunding. But I’m not sure the provisions around IPOs will necessarily be that simulative to innovation and growth. Here I agree with Richard Waters writing in the Financial Times (“Effects of the Jobs Act are hard to predict”) that:
at its heart, the new law is a package that reflects the various lobbying efforts of a coalition of financial interests. The new intermediaries that will spring up to service the crowdfunding business, the secondary market operators who fear that their businesses will shrink after Facebook goes public, the bankers, lawyers and accountants starved of IPO fees: all of these stand to gain. Whether more innovation – and jobs – will follow is harder to predict.
Of course, I think that there are other innovations we need to look at that are not touched upon in the law – including the expanded use of intangible assets (especially IP) as collateral for loans.
My worry comes from how lightly supporters have brushed off potential problems. Specifically, I am concerned however that there is little attention to what to do when things go bad. The mantra for entrepreneurship is “fail quickly and fail cheaply.” In public policy, that does not always work. It often takes years for the unintended consequences of a law to manifest themselves. And, due to political pressure, failure is seem as something to be denied not embraced. It is surprising to me to hear an apparently Washington insider (former SEC Commissioner) like Mr. Roberts make a statement that problems are not a problem because “Congress can change it.” Anyone who has spent any time in this town knows how difficult it can be to get Congress to change existing law. I suspect that any abuses will first work their way through the courts in the form of expensive lawsuits well before any legislative or regulatory changes are made. Whether the new law helps or hinders such lawsuits remains to be seen.
So, let me end by returning to Mr. Roberts’ excellent insight. If the JOBS Act is an experiment and in the spirit of innovation, what do the proponents of this new law propose as the mechanisms for measuring success and for learning from (and correcting the problems created by) failure? There is an opportunity here for the entrepreneurial community to step up and change the way Washington (and government in general) works. Will they seize the moment?