JOBS Act to Change Startup Funding Landscape

The fact that a great deal of the content produced by tech news sites concerns startup companies might make an observer from another planet think America is a veritable nursery for brilliant business ideas. The real truth is, since the "Internet bubble" burst in 2001, initial public offerings have not resumed the vitality levels of the late 1980s, let alone the boom years of the '90s.

This week, President Obama is scheduled to sign into law a bill that eases the Sarbanes-Oxley (SOX) auditing and reporting requirements on new companies looking to go public, as well as effectively legalizing the principle of crowdfunding - pooling the resources of micro-investors to make small batches of seed capital available to early-stage startups. It's a move that's not without controversy, and not even the people who are happy with it are completely happy with it. But it could affect one thing right away: the level of buzz and information surrounding young IPOs, which no longer have to keep mum.
Make Way for the On-RampThe most important belt that the Jumpstart Our Business Startups Act loosens concerns the amount of capital a new company may raise through the sale of securities in a 12-month period. Previously $5 million, the securities sales cap will be raised to $50 million. That cap will now specifically apply to a broader group of small companies: those with annual gross revenues of $1 billion or less (adjusted for inflation), within a five-year interval from the sale of its first security.

We'd better get used to the new phrase, emerging growth companies (EGCs). It's the term proposed by the National Venture Capital Association (NVCA) in a proposal last October (PDF available here), and this week it will be codified into law. It refers to this specific, new group of young, low-revenue companies for whom some of the SOX reporting regulations will no longer apply.