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Senate Passes Controversial Jobs Act, With Landmark Crowdfund Investing Provision

BY Sarah Lai Stirland | Thursday, March 22 2012

The U.S. Senate on Thursday voted to approve a controversial package of bills that would loosen the rules that govern the process of raising money and going public for small businesses and startups. The legislation would also relax the rules regarding how those companies disseminate information about themselves, and would legalize crowdfund investing. The package, H.R. 3606, was passed by a senate vote of 73-26.

As we've documented, the crowdfund investing provision was supported by a core group of entrepreneurs and makers who think it could help them find money for their nascent ideas. It's also supported by many big name angel investors, venture capitalists and techies in the high-tech communities in Silicon Valley and in Boston. However, state securities regulators and consumer groups opposed the House version of the legislation. They wanted more investor protections. The Senate version of the legislation that passed today went some way toward addressing those concerns with an amendment from Sens. Scott Brown (R-Mass) and Jeff Merkley (D-Ore) that would require crowdfunded companies to provide their investors with either tax returns or other financial statements before their offering.

The White House has previously issued a strong statement supporting the House version of the legislation. The Senate bill is now headed to the House, and House Majority Leader Eric Cantor (R-Va) issued a statement Thursday saying that he intends to schedule a floor vote on the senate bill early next week.

Among other things, the crowdfund investing portion of the Jumpstart Our Business Startups (JOBs) Act (H.R. 3606) would allow entrepreneurs to raise up to a million dollars a year through a portal registered with the Securities and Exchange Commission, and it would lower the bar for the kinds of investors who could put money into startups.

Currently, only individuals with a net worth of more than a million dollars can be angel investors. This Senate version of the proposed legislation would let investors put $2,000, or 5 percent of their income, into a company for individuals with annual incomes of less than $100,000, whichever is more. Those with annual incomes of more than $100,000 could invest up to $100,000 a year. The House version would simply allow individual investors to put in $10,000, or 10 percent of their annual income a year.

While crowdfund investing has its opponents, the rest of the JOBs Act is also controversial among consumer protection groups and many Democrats because of worries over the potential for fraud.

Meanwhile Steve Case, who has been working in tandem with the White House on its StartUp America initiative, praised Thursday's developments, but urged Congress to move onto other Silicon Valley action items:

In a Thursday statement, Case said:

"While it is important to celebrate this legislative achievement – both for entrepreneurship, and for bipartisanship – we still have work to do. Most immediately, I hope the House will pass the Senate version of the JOBS Act – the quickest and simplest path to getting this legislation to the President’s desk. Then, I urge Congress to take up the other recommendations of the Jobs Council, including steps to win the global battle for talent by updating our immigration policies, adopt new investment incentives, and implement expanded commercialization of federally funded research. If we do all this, I am confident that America can remain the world's most entrepreneurial nation, the key to our nation’s long term economic success.