If you’ve founded a startup, or are thinking of founding a startup, your API to OPM (Other People’s Money) just got earthshakingly easier to use.
Sitting in President Obama’s inbox this afternoon is HR 3606 – the JOBS act – ready for his signature, SEC rulemaking, and going into production. Three startup constituencies are going to get some good stuff from Washington:
- Angels and Angel Groups will be able to do much more business, easier, and actually solicit business much more directly and publicly,
- The onramp for taking successful startups public just got much easier to navigate, meaning it won’t take a Facebook-sized business to make this an attractive way of raising capital again,
- People like you and I (not “accredited investors”) will be able to buy stock through crowdsourced sites (called “funding portals”) in startups who with relatively little effort will be able to list with these portals. How much stock? Up to 10% of our annual incomes or $10K whichever is less. As for startups, those who go through portals, can crowdsource up to $2 million a year.
Three other parameters worth mentioning. While a startup could do all the legal stuff that needs to be done and sell stock direct, it’s going to be a lot easier, and a lot more credible, to go through a portal who can do all that for a hundred, a thousand, 10 thousand startups. And for all the non-tech would-be startup founders, no, you can’t use this kind of stock to pay for your Facebook clone – you can’t own crowdsourced stock in a company you work for. And speaking of those new funding portals, how much will they be making? Dunno. Stay tuned as the SEC makes the rules. At least they will be startups, insofar by at least one informed reading of the bill, existing stock brokers cannot become crowdsource brokers.
New Rules, new Game.
So how is this all going to play out after Obama signs the bill and the SEC spends six months writing out the nitty-gritty there will be devils in these details rules?
First off, go get on Motaavi’s mailing list, like now. There’s a great story by PandoDaily writer Erin Griffith about how Motaavi’s co-founder Melanie Plageman pulled a Ms. Smith Goes To Washington, buttonholing staffers, started building a database of startup by congressional district, and learning how the DC game is played. Upshot? Great networking, and already Motaavi is gearing up to start posting startup profiles. There will be of course other players – SecondMarket, KickStarter, Gate Technologies have been mentioned – but Melanie now knows the right people, is tied into the DC tech caucus, and has a power suit to wear while walking the walk :).
Second off, you need to get serious about a) what the hell your startup is going to do to be successful and b) just exactly why you want Other People’s Money. The single biggest hurdle to launching a startup is that it’s a killer to launch a company and hold down a day job. Crowdsourcing your big leap forward makes sense, and the 20 self-funded startups out there for every traditionally funded startup will be getting into the game. And that means it’s time to get read and adopt both Steve Blank’s brand new Startup Owner’s Manual and Ash Maurya’s Running Lean, 2nd edition. Both these guys are channeling Alex Osterwalder’s Business Model Canvas that gives founders a way of figuring out how their startups succeed and investors a much better way of comparing startups to startups that b.s. business plans.
Re what you plan to do with the money you crowdsource, that’s definitely an app I’d like to see – and you will too unless you delight in using crappy old Excel accounting templates divorced from startup reality. Keep in mind those funding portals have an ongoing responsibility under the JOBS act to report to their investors where the money invested goes.
Third off, expect to see the rise of a brand new kind of Angel/VC. When the likes of you and I go buy $300 of NextBigStartup through a funding portal, we (or at least I!) will be doing it in the hopes of making some money, money we get when that startup gets bought and the new owners buy out the crowdsourced owners, or the company goes public, or when an “accredited investor” makes us a good offer. We won’t be able to sell our stock for a year (see Sec. 4A(e)(2) of the HR3606 if you’re interested). But if a Ron Conway, Brad Feld or Dave McClure want to take buy that $300 of stock for say $900, I for one won’t say no.
So what happens when non-rich people can buy startup stock instead of lotto tickets, successful startups can go IPO-Big, Angels can do real audition calls for startups not American Idol-like competitions and a whole lot more would be startup founders can get that critical first couple of million dollars? Stay tuned – but that damn Internet has gone and done it again – disrupted how things used to be.