By Lamar Whitman,
Director of Public Advocacy, CompTIA
For some time, CompTIA has been calling on Congress and the
Obama Administration to advance technology progress and job creation by
providing small businesses and entrepreneurs greater access to growth capital. While CompTIA continues to support efforts to
increase the availability of loans to growth-oriented small businesses, there
are other steps that can be taken, such as easing the burden of raising equity
capital by small businesses. This can
be a win-win situation for investors, small businesses, unemployed citizens and
our national economy.
Congress is now considering legislation that would enable
small businesses to raise equity through a process referred to as
“crowdfunding.” That is, a large group
of investors (the “crowd”) come together to make small investments (“fund”) in
a business. Currently, there are two
main proposals dealing with crowdfunding: H.R. 2930,
“Entrepreneur Access to Capital Act,” which passed the House by a wide
margin on Nov. 3, 2011 and is now awaiting action in the Senate; and S. 1791, “Democratizing
Access to Capital Act of 2011,” as introduced by Senator Scott Brown (R-Mass.) on
Nov. 2, 2011. This Senate bill is
currently under the jurisdiction of the Senate Banking Committee awaiting
further action.
In general, the House-passed legislation allows for a higher
individual level of investment but contains additional compliance burdens.T he Senate bill imposes fewer regulatory
burdens on small businesses but lowers the individual level of investment.
Both bills would allow up to $1 million to be raised in a 12-month period. The House
bill would allow up to $2 million if audited financial statements are provided
to the investors. CompTIA supports
inclusion of the optional $2 million limitation provided by the House
version. We believe that businesses should
be allowed the higher limitation when audited financials are provided.
A key difference in the two pieces of legislation is the maximum
allowable investment. The House bill
would allow up to $10,000, limited to 10 percent of investor income; the Senate
version sets a $1,000 per investor limit, which is simply too low -- especially
in situations when the company provides additional documentation, such as
audited financial statements.
The Senate bill provides investor protection by requiring the
issuer to do the following:
-
disclose to investors all rights of investors, including complete
information about the risks, obligations, benefits, history and costs of
offering;
- and file required notices with the SEC.
The House version is much more detailed concerning the steps that
an issuer must complete. While we understand the intent is to protect
investors, the many requirements placed on issuers would likely mire down the
process and increase the cost of the offering. This would be contrary to the goal of crowdfunding legislation, which is
to streamline the offering process for small businesses in order to increase
equity investment.
The basic question is how much should be required of the issuer in
order to both protect the investor and maximize the issuer’s ability to raise
equity investment. We believe that
rather than detailing each specific step, the safeguards included in the Senate
version provide a reasonable balance.
We are also supportive of the state pre-emption included in both
bills. It is essential that Congress
provide a level playing field for investors and issuers to come together across
state lines. Businesses are continually
burdened with compliance requirements from the multiplicity of federal, state
and local jurisdictions. A single set of
rules that would apply nationally is critical to the success of crowdfunding
legislation.
There
is also pending legislation that would reduce
the filing and compliance burdens for certain small businesses that seek to
raise equity capital. This legislation would increase the SEC Reg. A exemption
level for small offerings from $5 million up to $50 million. Further, there have been discussions
concerning a possible amendment of SEC Reg. D to allow issuers to use Internet solicitations
in a public offering. CompTIA supports each of these proposals, which would
both simplify and reduce the compliance costs to small businesses in raising
much-needed equity capital.
America is
clinging to its spot as the world leader in technology innovation. Unless we improve
the ability of small businesses and entrepreneurs to access capital, our
current economic climate will continue to stagnate. Congress can take modest,
fiscally-responsible steps to provide a better climate to improve access to
capital for our small businesses. Nowhere is this more important than the fiercely-competitive global IT
industry. Clearly, increasing the
ability of small businesses to raise equity capital is needed and will fuel job
growth and our recovering economy.
Lamar Whitman is the
Director of Public Advocacy at CompTIA, a non-profit trade association advancing the global interests of
information technology (IT) professionals and businesses.
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