By Diana Alexandra Martinez for RealClearMarkets
In his haste to undo all remnants of the Trump Administration, Joe Biden has recklessly frozen a vital amendment meticulously designed to help save small businesses, support minorities and aid the majority of American’s investors.
On his first day in office, President Biden ordered a regulatory freeze on the advancement of all new rules and amendments. It’s a common move for incoming presidents looking to reverse the work of their predecessor, and a tactic that both President Trump and Obama used.
But presidential administrations should reconsider how halting pending legislation harms Americans.
Back in March of 2020, The Securities and Exchange Commission (SEC) voted to amend Section 4(a)(6) of the JOBS Act to increase the amount of money a private company can raise by non-accredited investors from $1.07 Million to $5 Million every 12 months.
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The history here is key. The SEC used to prohibited general solicitation for private securities; meaning that small companies could not advertise their need for capital.
Therefore, the only way for private companies to acquire funds was through an angel investor, venture capital firm or a private equity fund. This shut the door on many small business owners who didn’t have these connections.
But the prohibition was removed when the Jumpstart Our Business Startups (JOBS) Act was signed into law in 2012, providing a pathway for non-accredited investors to participate in securities offerings.
Before the JOBS Act, there was no way for a non-accredited investor to invest in early stage private companies.
As a result, the majority of Americans missed out on opportunities such as Uber, Snapchat and Facebook pre-IPO. The JOBS Act changed that, allowing millions of Americans to get in on investment opportunities that had previously been hidden behind closed doors.
And it’s had an immense impact on business owners — and on minority business owners in particular. This is because minority business owners have historically not had long standing relationships with venture capitalist firms; lacking the connections needed to acquire funds. Venture capital has a diversity problem.
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A recent analysis by The Journal blog of venture capital diversity statistics found that 70 percent of venture capital firms’ personnel are white.
Furthermore, A University of California study found that the average minority entrepreneur starts a business with just $35,000 in capital — a third of the startup capital for the typical white entrepreneur.
The JOBS Act helped mitigate this by leveling the playing field, enabling any company to raise capital over the internet from their own communities. This democratized access to capital.
The current revision of the JOBS Act — the one the Biden Administration has suspended — would build on this progress by increasing by 500% the limit of funds companies can raise from “non-accredited investors” — that’s anyone making less than $200,000 annually (less than $300,000 including a spouse) with a total net worth of less than $1 million.
This would affect a large majority of the U.S. population, as around 90% of Americans are non-accredited. Additionally, the amendment would benefit investors, entrepreneurs and small businesses owners.
Due to the Covid-19 Pandemic, the need for capital has only become more crucial to sustain American businesses. Now’s no time to make the bureaucratic process any slower than it’s already been.
The SEC proposed the amendment back in March of 2020. First, the proposal was published in the Federal Register. Then the SEC opened their mailboxes for a commenting period.
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Months later, the SEC finalized their proposal. In November, the SEC voted to approve the amendment. It typically takes a couple of weeks after SEC approval, for the amendment to be published in the Federal Register, where it waits 60 days until it becomes active law.
However, the SEC took their time to publish the amendment, and as a consequence what should have been published in November of 2020, was just published on January 15, 2021, just five days before Biden’s freeze.
Now, because of the regulatory hold, there is no timeline. This freeze is wasting valuable time for American investors and entrepreneurs.
American businesses are dying and this amendment is the lifeline so many businesses need. This is not the time for bureaucracy, this is the time for action.
Syndicated with permission from RealClearWire.