By Diana Alexandra Martinez for RealClearMarkets
In his rush to undo all remnants of the Trump administration, Joe Biden ruthlessly froze an important change meticulously designed to save small businesses, support minorities, and help the majority of American investors.
On his first day in office, President Biden ordered a rule freeze for further development of all new rules and changes. This is a common move for future presidents looking to reverse the work of their predecessor, and a tactic that both President Trump and Obama have used.
But presidential administrations should reconsider how pending laws harms Americans.
Back in March 2020, the Securities and Exchange Commission (SEC) approved the amendment to Section 4 (a) (6) of the JOBS Act to increase the amount of money a private company can raise from non-accredited investors from $ 1.07 million. Increase USD to USD 5 million every 12 months.
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The story here is key. The SEC formerly banned general advertising for private securities. This means that small businesses could not advertise their capital needs.
As a result, private companies could only acquire funds through an angel investor, venture capital firm, or private equity fund. This closed the door to many small business owners who didn't have these connections.
However, the ban was lifted when the Start-Up Start-Up Aid Act (JOBS) was signed in 2012, which gives non-accredited investors the opportunity to participate in securities offers.
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 opportunities like Uber, Snapchat, and Facebook before going public. The JOBS Act changed that and allowed millions of Americans to capitalize on investment opportunities that were previously hidden behind closed doors.
This has had a huge impact on entrepreneurs – and minority entrepreneurs in particular. This is because minority company owners have not had longstanding relationships with venture capital firms in the past. Lack of the connections necessary to acquire funds. Venture capital has a diversity problem.
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A recent analysis of venture capital diversity statistics by the Journal blog found that 70 percent of venture capital firm employees are white.
In addition, a study by the University of California found that the average minority entrepreneur starts a business with just $ 35,000 in capital – one-third the starting capital of a typical white entrepreneur.
The JOBS Act has helped mitigate this by creating a level playing field and allowing any business to raise capital from their own communities via the internet. This democratized access to capital.
The current revision of the JOBS Act – which has been suspended by the Biden administration – would build on these advances by increasing the limit of funds that companies can raise from "non-accredited investors" by 500% – that's anyone who earns less than $ 200,000 per year (less than $ 300,000 including a spouse) with a total net worth less than $ 1 million.
This would affect a large majority of the US population as around 90% of Americans are not accredited. In addition, the change would benefit investors, entrepreneurs and small business owners.
Due to the Covid-19 pandemic, the need for capital to keep American companies going has become increasingly important. Now is no time to slow down the bureaucratic process.
The SEC proposed the change back in March 2020. First, the proposal was published in the Federal Register. Then the SEC opened their mailboxes for a comment period.
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Months later, the SEC finalized its proposal. In November, the SEC approved the change. It typically takes a few weeks after the SEC has approved the change for the change to be posted in the Federal Register. There it waits 60 days before it becomes an active law.
However, the SEC took its time to post the change, and as a result, what should have been released in November 2020 wasn't released until January 15, 2021, just five days before Biden's freeze.
Due to the regulatory influence, there is currently no schedule. This freeze wastes valuable time for American investors and entrepreneurs.
American businesses are dying, and this change is the lifeline so many businesses need. This is not the time for red tape, this is the time for action.
Syndicated with permission from RealClearWire.
Diana Martinez is a law student at Boston University School of Law. More recently, she researched and drafted a bill on sports betting and consumer protection in the Massachusetts Senate Office. Follow her on Instagram @dianaalexandra and Twitter @dianamartinezjd.
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