A willingness to compromise and overcome distrust is the on-ramp for solving other difficult national problems.
By Steve Case
Is it possible that a law passed by today's polarized Congress is actually working to strengthen our economy? New data show that the JOBS Act (Jumpstart Our Business Startups) is doing just that.
The JOBS Act was enacted in early April 2012 thanks to a unique coalition: grass-roots entrepreneurs (especially from the tech community), House Republicans (notwithstanding their skepticism of President Obama ), a majority of Senate Democrats (notwithstanding their skepticism of House Republicans), and the White House. I was an outspoken proponent and spent countless hours persuading Hill Democrats and Republicans, and key staff at the White House, to ignore their distrust and come together. I stood behind the president and members of Congress as he signed the bill in the Rose Garden.
The legislation has three central provisions. The first makes it easier to launch and back startups through the use of crowdfunding. The second allows venture-capital firms and others seeking investment to make "general solicitations"—appeals via mass media, or social media—to potential investors. The third is called the "IPO on-ramp." This provision makes it easier for a company to go public, in part by allowing its owners to make less onerous "disclosures."
Shortly after the law's passage however, investor-protection advocates, including some academics and politicians, sharpened their criticism and the JOBS Act fell out of political favor. Moreover, its impact has been unclear because the Securities and Exchange Commission has moved slowly to write rules to implement the crowdfunding and general-solicitation provisions.
Nevertheless, the self-executing IPO on-ramp is starting to make a real difference. IPOs are up 70% this year, according to a report by Thomson Reuters early last month. Technology-company IPOs are forecast to hit their highest level in more than a decade. In the first few months of 2014, Renaissance Capital has reported that 103 companies have filed to go public. The surge of IPOs scheduled for the next few weeks—including industry heavyweights like Alibaba, Spotify and Opower—is so strong that the major exchanges have more companies going public than slots to ring the opening and closing bell.
While many factors account for the surge, a recent, in-depth survey by BDO of securities attorneys whose firms are involved in these transactions showed that 74% gave "significant" credit to the JOBS Act. The attorneys especially cited the provision allowing simpler pre-filing disclosures.
Taking companies public matters for the economy, not just for the owners and investors. A study by the National Venture Capital Association showed that 92% of job growth in high-growth companies came after their IPO. A Kauffman Foundation study in 2012 found that "emerging growth" companies—those covered by the JOBS Act—increased employment by 156% after their IPOs. More initial public offerings mean more jobs, more quickly.
Critics suggest that less detailed disclosures put investors at risk. But the transparency benefit of the old legal regime was limited because fewer companies were choosing to become public on U.S. exchanges given the costs. JOBS Act IPO filings do disclose less detail about the company's operations, but they offer opportunities for individual investors that would not be available if the companies remained private.
Other critics highlight the crowdfunding risk to the public. But crowdfunding investments under the JOBS Act are limited to $2,000 for middle-class investors. Compare that risk to what these families can bet in, say, Las Vegas.
The success of the JOBS Act provides three lessons for Washington policy makers polarized by ideology and hidebound in their attitudes toward policy innovation.
First, while some people will suffer losses from investing in IPOs issued under JOBS Act regulations or in crowdfunding appeals, economic success turns on taking chances and embracing risk. Americans should be allowed to make their own choices and assume risks that can boost the economy and their family bank accounts. Protections against fraud are important and safeguards should be put in place. But overprotection led to a stifling environment that slowed growth and limited opportunity. The JOBS Act reflects a more classically American acceptance of risk and its rewards.
Second, half a loaf is better than none. The JOBS Act lost some fans on the right because it did not deregulate securities more dramatically and didn't include tax-cut provisions they favored. Some on the left complained that the law rolled back some New Deal-era regulations governing how companies could raise money to scale their operations. But men and women in both parties overcame these attacks and partisan mistrust, found a middle ground, and the result is a success. If they did it once, they can do it again.
Third, laws need to be updated to reflect technological innovation. Most of the securities statutes that the JOBS Act modified were 80 years old—rules written when investors lacked easy access to the phenomenal amount of information they can now get. The world is changing, our economic rivals are changing, our economic opportunities are changing. So too must our national policies. What the JOBS Act did for securities laws, other legislation should do for immigration, investment incentives and patent laws to ensure that the U.S. remains the most entrepreneurial country in the world.
The JOBS Act is making it easier to take companies public, where they can grow. Once the SEC finishes rule-making for crowdfunding and general solicitation, the public's participation will also increase. But perhaps the JOBS Act's greatest contribution will be if it provides a model to tackle other hard problems, with innovation, compromise and courage.
Mr. Case is chairman and CEO of Revolution LLC, a Washington-based venture-capital firm. He was the co-founder of AOL, the first Internet-based company to make an initial public offering.
