We don’t normally do opinion pieces at CareerFuel, but in light of the legislation before Congress known as the JOBS Act and its potential impact to small business creation, we offer the following perspective.
We have 3.1 million jobs available today and 24 million people unemployed or underemployed. In the absence of a massive government job-creation program, this disparity will require a wave of entrepreneurial activity to create jobs. The single biggest challenge facing entrepreneurs, however, is capital. This is a problem driven in part by market inefficiencies: a highly fragmented landscape; extensive regulations; and a system that depends heavily on one’s network (ideally of successful and wealthy individuals) to navigate. With the scale and efficiencies of the web, crowd funding for equity is an idea whose time has come.
Individuals can gamble or play the lottery with no restrictions. How is it that a limited purchase of stock in a startup is any different in risk? While I applaud our political leaders for working together to help small businesses with the JOBS Act, the current legislation before the Senate is misguided. If it follows The House Bill, it will limit investments to the lesser of $10,000 or 10% of net worth. Not only does this allow for too much risk for all but the wealthy investor as fraud is inevitable, but I believe it misses the spirit of what crowd funding should accomplish.
Crowd funding, at its heart, should enable the average American to participate in a sector of our economy that has long been the purview of the rich. Currently, Americans do not have a chance to invest in companies such as Apple or Amazon until its value has been largely vetted and its public market price reflects it. Limiting such investment opportunities has been a contributing factor to the 1% wealth bifurcation of our society.
Every American should have the opportunity to purchase a minimal amount of ownership, in order to be there on the ground floor and enjoy the possible rewards. Kleiner Perkins and Sequoia Capital purchased an estimated 44M shares of Google in 1999 at 57 cents per share. Each share grew to $85 in the 2004 IPO offering and would be worth $633 today, if unsold. Net, the majority of the gains (149X the purchase price) were pre-IPO, while the IPO investors gained 6.5X on their money. Assuming the same terms that grew Kleiner Perkins and Sequoia’s original investment of $25M to $28B today, a crowd funding investment of $250 would be worth $278,736 today.
An offering limited to small denominations does not require extensive knowledge or disclosures and it should not come with any rights to influence the company unless organized by a collective group controlling (let’s say) 20% or more of the crowd funded stock. For in the absence of limiting involvement, the already stretched small business owner would not be able to build the business. This does not serve anyone’s needs in the end.
My company, CareerFuel, would love to offer Americans a chance to “Own a Piece of How America Works”. Our product—curated and original content designed to provide the “cliff notes” on how to find a job or start a business—is inherently designed to solve their economic needs. If the average American is good enough to make my business a success, as my customer, why shouldn’t they be entitled to participate in the financial upside as an investor?