Commentary: The JOBS Act would provide vital regulatory relief
This article first appeared in the St. Louis Beacon, March 16, 2012 - It is very heartening to witness the unanimous bipartisan support of the St. Louis-area House of Representatives delegation for HR 3606, the JOBS (Jumpstart Our Business Startups) Act, which was recently approved by the U.S. House of Representatives by the extraordinary margin of 390 to 23. Equally heartening would be for Sens. Claire McCaskill, D-Mo., Roy Blunt, R-Mo., Richard Durbin, D-Ill., and Mark Kirk, R-Ill., to lead their colleagues and provide the same bipartisan support for the JOBS Act in the Senate.
Importantly, President Obama endorsed the objectives of the JOBS Act both in a speech to a Joint Session of Congress last fall and again during his State of the Union address in January. The president specifically encouraged the Congress to pass a bill and “get it on my desk this year.”
The act is not another stimulus spending effort requiring billions of federal dollars. The JOBS Act aims to remove the regulatory burdens that have strangled young companies in America for a number of years, without compromising investor protection.
Perhaps the most dramatic symptom of the overregulation of young companies can be found in the U.S. Initial Public Offering (IPO) market, which has essentially disappeared for most emerging companies. With the exception of social media companies, e.g., Groupon and Facebook, the IPO market does not exist. Over the course of a decade, the average annual number of American IPOs declined to just 45 recently from 547 in 1999.
Why? The answer lies in overregulation in the form of Sarbanes-Oxley and the myriad other regulations that impose enormous costs on smaller IPOs and smaller highly innovative companies. Happily, the House of Representatives and the president now realize that the overall effect of this regulatory blanket has been to smother innovation in America and deprive the United States of millions of new jobs that traditionally have been created by dynamic young enterprises. The Senate should follow suit.
As a venture capitalist and an investment banker for more than 30 years, I can attest that it has become extraordinarily difficult to build young technology companies, irrespective of the strength of the science and technology or the management team.
Because the IPO, which is the primary source of liquidity, has disappeared, investors in private rounds of financing, which contain risk and can be illiquid, have vanished. In other words, the collapse of the IPO market has crushed the private markets. Moreover, many investors who are unable to invest in private rounds of financings have no way to participate in funding these young companies because a public market never materializes.
The net result of this overreaching regulatory environment is that America is squandering the opportunity to create new jobs and lags in its effort to remain the global leader in technology and innovation. The JOBS Act will free the markets and permit ready access to capital for the very promising emerging technology companies in the United States.
For more than a century, the United States has grown its way out of deficits and difficult economic challenges to lead the world. Job creation through disruptive new technologies created by innovative young companies in America propelled America’s growth into the world’s largest economy. The U.S. Senate should pass this vital legislation as quickly as possible and send it to President Obama’s desk for his signature.
J. Joseph Schlafly III is senior vice president and director of private markets at Stifel Nicolaus. He is a member of the board of directors of the St. Louis Beacon.