The Big Story: JOBS Act 4.0 could create more opportunities for startups
Policymakers are considering a sweeping package of proposals that could increase opportunities for startups to access capital and reduce regulatory barriers that make existing opportunities difficult. In comments to the Republican leadership of the Senate Committee on Banking, Housing, and Urban Affairs, Engine explained how the Jumpstart Our Business Startups (JOBS) Act 4.0—as well as potential modifications and additions to the bill—could incentivize investment, open up more avenues for would-be investors, and advance equitable access for the startup ecosystem.
The enactment of the JOBS Act of 2012 was hailed as a significant bipartisan effort to encourage more companies to go public and opened up new avenues for startups to raise capital, including through Regulation Crowdfuding. And the new JOBS 4.0 discussion draft would build upon these efforts and continue to support innovation in new ways. The draft contains a number of provisions that showcase opportunities where startups and investors could benefit—the Expanding American Entrepreneurship Act, for example, would help to diversify the pool of investors that are eligible to invest in new businesses by reforming 3(c)(1) funds. Boosting the number of potential investors and raising the fund cap allows a wider, more diverse group of investors the opportunity to participate. Feedback from founders in our network indicated this proposal could even go further to include more investors, especially women and investors of color. Engine and founders in our network were similarly encouraged by a proposal that would expand the definition of accredited investor. As we have stated in the past, broadening the definition would help to boost representation among investors and would lead to more funding for underrepresented founders. Another proposal to broaden the universe of accredited investors would allow individuals to become accredited investors after passing an exam, but, as we noted in our comments, policymakers should be mindful of the format and content in that exam so that it is accessible to everyone.
Startups indicated overall support for efforts to improve capital access pathways, but some were hopeful committee members would consider the unique needs of diverse founders in the potential package. For example, in considering reforms to Reg CF, founders encourage the SEC to focus on education and outreach to communities often left out of engagement on or unaware of Reg CF. Finally, startups indicated that policymakers shouldn’t focus solely on the path to IPO and instead include support for mergers and acquisitions, as they represent a more commonly accessed startup exit pathway.
As we noted in our comments, Engine commends the committee on their efforts to pursue a bipartisan approach for new avenues of boosting access to capital for startups. As work on the proposal continues, we encourage policymakers to include feedback from founders and investors in the startup ecosystem.
Policy Roundup:
Join us for Patent Quality Week. We’re hosting our second annual Patent Quality Week starting on Monday, June 6 through June 10 where we—alongside partners, startups, policy leaders and more—are highlighting how innovators, small businesses, and the broader U.S. public all depend on a balanced patent system built around the issuance and reasonable enforcement of high-quality patents (and in turn, a system that rejects invalid patents and abusive assertion). We will focus on demystifying the patent system and exploring what it means and why it matters to everyone across the country. Tune in next week to hear from startup founders about the varied (sometimes surprising) ways they experience the patent system, and learn about today’s hot patent policy topics and how this all impacts you, regardless of whether you ever apply for a patent.
Supreme Court blocks Texas social media law. In a 5-4 decision on Tuesday, the Supreme Court blocked a controversial Texas social media law that would, among other things prevent large Internet companies from moderating content on their platforms based on “viewpoint.” The Texas law was challenged by trade associations representing large tech companies, which said it violated the companies’ constitutional rights to host—and not host—speech without government interference. Initially a lower court kept the law from taking effect, but that decision was reversed in recent weeks by the Fifth Circuit Court of Appeals. The Supreme Court’s decision this week puts enforcement of the law back on hold until it is further considered in court. In a dissent joined by Justices Neil Gorsuch and Clarence Thomas, Justice Samuel Alito said the court should consider the “novel” questions that arise from applying First Amendment precedent to large social media companies.
California Privacy Protection Agency issues new draft regulations. This week, the California Privacy Protection Agency issued draft privacy regulations adding onto existing rules under the California privacy law including around “dark patterns” and new restrictions on collection and use of personal information. The agency plans on holding a hearing early this month to further discuss before kicking off a process that will include opportunities for comments and modifications.
Countries seek to tax digital goods and services. At the 12th Ministerial Conference of the World Trade Organization that will be held later this month, India plans to oppose continuing the moratorium on customs duties for electronic transmissions in order to clear the way for taxing digitally-enabled services and digital goods like music, movies, video games, and software. India’s opposition, based on concerns of lost revenue, has been joined in the past by South Africa, and incoming Philippine Finance Secretary Benjamin Diokno is considering placing taxes on digital transactions. The moratorium—which is critical for digital trade and minimizing trade barriers for startups—was first agreed to in 1998 and has been renewed at each Ministerial Conference since.
U.S. and Taiwan launch new trade initiative. Earlier this week, American and Taiwanese officials launched trade talks to deepen economic and trade relationships and promote innovation. Taiwan is an important source of semiconductors, and the U.S.-Taiwan Initiative on 21st-Century Trade will focus on other areas important to startups, like regulatory practices, supporting SMEs in trade, and harnessing the benefits of digital trade. The first meeting of the initiative will be held later this month in Washington, D.C.
Startup Roundup:
Recognizing the contributions of AAPI entrepreneurs. This week marked the end of Asian American, Native Hawaiian, and Pacific Islander Heritage month, an opportunity to celebrate entrepreneurs and innovators. Throughout the month, we highlighted AAPI founders in our startup network, including Joey Mak, Executive Director of Chicago:Blend—a non-profit ecosystem support organization that works to bridge equity gaps for underrepresented funders and founders, and inflate inclusion into Chicago’s VC industry. Joey explained that underrepresentation is a huge social problem, particularly in the tech startup ecosystem where “a lack of representation presents a likely loss in innovation and economic growth,” and that “tech and investment communities should reflect the great diversity that exists among our broader population.”
We also celebrated entrepreneurs like Maurice Ng, Co-Founder and General Partner of Tings Capital—a minority-owned venture capital fund that invests in underrepresented founders. Maurice shared that white men dominate the investor space by 85 percent which “leads to a bit of hesitancy in investing in companies built to address challenges they are not personal familiar with, which translates to many missed investment opportunities.” As we noted in our report on Making the Startup Ecosystem More Equitable, as of 2019, Asian founders make up roughly 17.7 percent of those backed by venture capital, and founders of color rely more heavily on capital from personal and family sources.
AAPI founders, investors, and leaders of ecosystem support organizations are an essential part of the innovation ecosystem, and members of the ecosystem as well as policymakers must make strides to ensure that every entrepreneur has the opportunity to succeed.
