A rare piece of bipartisan legislation aimed at helping spur job creation is currently making its way through Congress. The Jumpstart Our Business Startups (or JOBS) Act is a package of six bills that would ease various Securities and Exchange Commission rules that apply to small businesses looking to secure financing.

The JOBS Act would make it easier for small businesses to go public by relaxing regulatory criteria. For example, new public companies with less than $1 billion in annual revenue would be allowed to forego audits for five years, and they would be able to raise up to $2 million from online investors without going through the usual disclosure process.

Broad Vocal Support

The JOBS Act has received vocal support from many members of the venture capital and startup business communities, who see it as an important move toward deregulation that will help make it easier for small businesses to raise capital, expand and create jobs. While no one pretends the bill is a magic bullet that will cure all of the nation’s job ills, proponents believe it is a big step in the right direction.

In particular, many support a feature of the bill that would allow crowdfunding, the process by which small companies raise growth capital from a large number of individual investors. “Crowdfunding can change the way we all think about early stage investing,” wrote Ryan Caldbeck, the founder of CircleUp, an equity based crowdfunding website, last week on Techcrunch.com (http://techcrunch.com/2012/03/16/crowdfundingstartups/).

“Today, startup investing is reserved for the one percent. Less than one percent of Americans are ‘angel’ investors and less than one percent of all small businesses receive outside equity investment,” Caldbeck writes. “As a result, a vast majority of the economy —entrepreneurs, investors, and whole industries—are left out of this virtuous cycle.

Crowdfunding will open up new funding possibilities for these neglected areas of the economy.”

Kenneth Wisnefski, an entrepreneur and the founder of WebiMax, believes that the JOBS Act will help companies like his secure investors to expand operations and create jobs. “Since 2008, it has been virtually impossible for entrepreneurs to secure financing from lenders. In 2008 when I launched WebiMax, I had to dump the majority of my investments to fund the launch of the company.”

But What About Fraud?

Despite the bill’s bipartisan political support (it passed the House earlier this month by an overwhelming majority vote of 390 to 23) and the support of many in the venture capital and startup communities, there are some who are concerned that the bill’s relaxed regulatory criteria could lead to financial fraud like the kind that was perpetrated at companies like Enron and Worldcom during the dot-com boom and bust.

A New York Times article published last week (http://dealbook.nytimes.com/2012/03/14/a-jobs-bill-that-will-provide-help-but-for-all-the-wrong-people/) cites Columbia Law Professor John Coffee’s sarcastic comment calling the bill “the boiler room legalization act.” And despite his support of the bill, even entrepreneur Wisnefski has some concerns: “There may not be enough regulation within the bill to prevent another 2008 financial crisis. Ultimately, there needs to be more regulation within the bill to ensure entrepreneurs and small businesses that use it dedicate the funds to eventual job growth—and not just gaining investment.”

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