WASHINGTON — President Barack Obama signed the Jumpstart Our Business Startups (JOBS) Act Thursday in a ceremony that included a handful of prominent Republicans.
While Obama said the law will give small businesses more access to capital and Americans the chance to invest online in entrepreneurs, not everyone is convinced that “crowdfunding” will work.
“For startups and small businesses, this bill is a potential game-changer,” Obama said at the Rose Garden signing ceremony.
The president said it has been difficult for small businesses to get operating capital because of the recession, and that entrepreneurs have a limited group of investors they can approach for funding.
“Because of this bill, startups and small business will now have access to a big pool of potential investors, namely the American people,” Obama said.
The bill, introduced Dec. 8, 2011, had bipartisan support in Congress and came to the president’s desk with unusual speed.
One of the most-discussed provisions of the law is crowdfunding, which will allow entrepreneurs to raise up to $1 million in equity capital from small pools of investors without having to register with the Securities and Exchange Commission.
While the law will help established businesses looking to grow, crowdfunding is an experimental investment tool. It remains to be seen how many jobs the law will help generate.
“We just don’t know yet what the upside will be,” said Robert Litan, senior fellow at the Brookings Institution.
Online platforms like Kickstarter and LendingClub already connect investors with entrepreneurs, and are growing in popularity.
Peer-to-peer lending site Prosper.com launched in 2006 and it wrote twice as many loans in 2011 as it did in 2010, a spokesperson for the San Francisco-based company said. The new law validates online lending and investing platforms, which provide innovative ways for investors and borrowers alike to access capital, she said.
“It’s very hard to get funded if you’re outside one of the hubs and having more sources of capital is definitely good,” said Naval Ravikant, CEO of AngelList.
In March, Mary Schapiro, chairman of the Securities and Exchange Commission, issued a letter asking for better investor protections. The law stipulates that individual investments will be limited to $10,000, or 10 percent of the investor’s income, whichever is less. But the burden will fall on investors to do their homework about the online platforms that connect them with entrepreneurs who need funding.
A group of crowdfunding companies will work with the SEC to establish an industry standard “Investors’ Bill of Rights” with core investor protections, including an enforceable code of conduct for crowdfunding platforms and a way to make sure investors stay within the law’s investment limits.
“A lot of people are worried about fraudsters,” Litan said. But the president is directing the Treasury Department, Small Business Administration and Justice Department to closely monitor the law’s implementation , according to a White House statement. Obama also asked Congress to keep regulatory bodies such as the SEC well-funded.