NY Fintech Startups held their August meeting at midtown’s Day Pitney Law Offices in order to help each other navigate the difficult and treacherous waters of financial regulation. Co-organizers Jon Zanoff and Michael Giles talked about how technology serves finance in a number of ways. “It democratizes what was once in the hands of those behind mahogany desks on Wall Street into mom and pop hands,” they explained. “The technology itself is driving costs down, making it cheaper to invest, and all of that flows through to the consumer. Therefore people are able to hold on to what they’re earning.”
This Meetup has a cross-section of members from the investment community and the startup world and everything that surrounds that — investors, entrepreneurs, startups, accountants, lawyers, project managers, internal technologists and consultants. It also includes nascent financial services like SecondMarket, whose managing director Adam Oliveri was on hand to clarify the new JOBS Act called “Jump Start Our Business Startups.” In March this bill opened up crowdfunding for businesses that raise money from non-accredited investors, not just VCs or angels.
He pointed out that the most important point of the JOBS Act was that now a company can stay private as long as the owners want; they can even go public if they want whether or not they have a big company. The problem it solves is that now small to medium businesses can take control over the way they fundraise and grow.
“That’s pretty profound,” Oliveri commented. “I think there’s going to be an opportunity to create a whole new segment within the investment world or in the financial services world. I hope to inspire people to think about ways that they might be able to create value for this ecosystem by creating their own company.”
He went on to list the five things that Jump Start does for entrepreneurs and that particularly affect the growing mass of technology startups:
- It removes a ban on general solicitation in private investment.
- It creates a new exemption for crowdfunding, which is sort of broad based retail equity fundraising for private companies.
- It creates a new offering exemption for companies to raise pretty large amounts of money without registering to the FCC.
- It creates a category called emerging growth companies, they don’t have to follow all of the same rules nor have the same cost structure associated with the regulatory compliance of being a public company.
- The maximum of 500 shareholders has been increased to 2000. It no longer counts employee shareholders towards that cap.
“It comes back to control,” explained Oliveri. “It’s about putting the control back into the hands of the company, although it’s kind of an arbitrary number. Really the people these rules are trying to protect are uninformed retail investors. There should be some limit to the number of those types of folks that you could have before you should have to join the public market system, but I think 500 was arbitrarily low. The JOBS Act signals a fundamental shift in the way that investment activity can happen. It creates an opportunity for people to do some new and innovative things.”