Last week both houses of Congress passed the JOBS Act (JOBS stands for “Jumpstart our Business Startups”).  The law, making it easier to raise up to $1million from a larger pool of investors, garnered bipartisan support, passing the House 380-41 and the Senate 73-26 (all votes against were Democratic). President Obama indicated that he plans to sign the law on today, with Eric Cantor (a major sponsor) in attendance. 

The law will create very few jobs, the name is purely political, but has huge implications for entrepreneurial funding.  I think what excites me the most is that from now the excuse “I can’t find funding” is mute!  Funding is now so much easier to get, maybe too easy!  Can we say “invitation to fraud”?  And “You got funding for that?”

The big change is the formalization and government blessing for crowdfunding.  Crowdfunding opens startup investing to almost all individuals (is that good I wonder? The Hope Scholarship here in Georgia makes college much easier for all, and has hurt education I would argue!) and gives young companies more funding opportunities.  Companies can sell securities to non-accredited investors using the various crowdfunding platforms.  Websites such as Indiegogo.com, Kiva.com, and Kickstarter.com allow entrepreneurs to post business plans for thousands to read and possibly invest.  Instead of fighting to get meeting with pretentious venture capitalists and angels, entrepreneurs can get capital from willing small investors just by posting online.  Individuals making less than $40,000 a year will only be able to invest 2 percent of their annual income in startups. Those earning more than $100,000 can invest up to 5 percent.

The biggest change perhaps is the so-called 500 rule.  It becomes the 2,000 rule, meaning that certain SEC reporting is delayed until the company has 2,000 shareholders.  This extra room allows companies to sell shares to 1,500 extra people, the crowd.

For more advanced companies, they have greater flexibility in filing to enter the public markets, hopefully making it easier to IPO.  By allowing general solicitation, companies raising money will operate under new rules, which should make it easier.  But like the rest of the bill, the final implementation lies up to the rule-writing SEC.  Some VCs opposed this easing, arguing that going public is supposed to be hard.

The effect of all this?  Some crappy companies will get funded for sure. Fraud will go up, and the cheated will be the poorest, even though they are supposedly protected. The number of jobs will certainly NOT go up.  Nothing in the bill does that.

This is the most important aspect: funding should become much, much easier, even for bad ideas.  I predict that for awhile, 2-3 years, this sort of investing will be cool, in vogue.  Crappy ideas will get funded.  Everyone should list their young companies and see how much money they can get off the table.  Reduce risk, see how much Kickstarter money you can get.  I plan to.