WASHINGTON – The U.S. Senate passed an amendment Thursday designed to ease the requirements for start-up companies to raise money from ordinary people online and mandate they disclose their financial statements and business plans.
Senator Michael Bennet (D-Colo.), a co-sponsor of the measure, cast it as a modest economic remedy for small businesses and Main Street. “This is a real opportunity to take one step – not a huge step, not a huge step – but one important step forward to filling this gap we see here,” he said Wednesday, standing next to an economic chart, “to create an economy again where rising economic output means rising wages and rising jobs.”
Bennet’s amendment sailed through the Senate, on a 64-to-35 bipartisan vote, and is not expected to meet resistance elsewhere. House leaders have said they will vote on the measure next week and attach it to a larger jobs bill. President Obama has said he will sign the bill into law.
Under current law, start-up companies raise money from venture-capital firms and “angel investors” who possess more than $250,000 in salary and $1 million in cash minus the value of their house. Bennet’s measure seeks to help companies overlooked by those investors and tap into “crowdfunding.”
It would allow a person who earns as little as $50,000 a year to invest as much as $500 annually in a company and those who make at least $100,000 a year could invest as much as $2,000. Also, the measure would not require a company to register with the Securities and Exchange Commission until they have 2,000 investors rather than 500.
Chase Norlin, a San Francisco-based Internet entrepreneur and CEO of AlphaBird, believes the measure could have far-reaching effect if it becomes law.
“Ostensibly this broadens the investor pool,” he said. “Finding ten high-net worth individuals who will write you a $100,000 check is both very difficult and geographic specific to places like Silicon Valley and Wall Street. This bill allows you to get 500 people to write you $2,000 checks. However, it could create more pressure for companies to go public because they’ll have more investors who want liquidity.”
In addition to lowering capital requirements, Bennet’s measure would require start-up companies to provide disclosures about their financial condition, business plan, and potential conflicts of interests. It would also exempt them from some Securities and Exchange Commission regulations in the first five years after an initial public offering and allow them to offer up to $50 million in public stock without registering with the SEC.
“This allows crowdfunding to thrive but it also contains an appropriate level of oversight and investor protection,” Bennet said Wednesday.
He co-sponsored the measure with Senator Jeff Merkley (D-Ore.) and Senator Scott Brown (R-Mass.).