JOBS Act Jitters

Mr. Webb.

In one of my first Betabeat columns, I wrote about my concerns that the tech bubble has been only tempered by the larger economy. Once that economy rebounds, the unbridled enthusiasm in the tech sector will take off and the bubble will enter into the danger zone.

Even earlier–one year ago next week–I wrote my most popular blog post of all time. It was entitled “on the bubble.” I wrote it on my Tumblr. It was hella popular. Really. I wrote it one Saturday afternoon, in an almost stream of consciousness rant. I woke up, had some soup, and grabbed a Diet Coke and started writing. You can tell, when you read it (and do!) that it sort of hangs together, but that I come across new ideas as I’m writing it.

The basic premise of the piece, if you don’t feel like reading all 2,000 words of it, is that we are in the early stages of a tech bubble, and that most of these companies are funded by advertising, and advertisers don’t spend enough money, worldwide, to turn more than a few of these startups into “the next Google” or “the next Facebook,” even if all the ad money in the world went online. I still believe that. And I still believe that we’re in a bubble.

Finally, in the follow up discussions around my bubble post, I made this observation:

“We’re already hearing rumblings from the tech industry about how SOX [Sarbanes-Oxley –ed.] is burdensome, and SOX needs to be reworked, and SOX is interfering in the tech industry’s innovation. But it is not. SOX is going to be doing its job in this bubble. And if you want to actually look to see when this bubble’s gone to far, I would actually say that one of the easiest ways to measure how close we are to bubble busting, is to watch the chatter around SOX or, god forbid, action that lessens it. We’re at the end, then.”

Well, well, well. Little did I know it would come this soon.

Being a tech investor, one would think I’d be all for the JOBS Act. And there are some worthy things in there. I like going to demo days, where startups can pitch their new startup ideas to a room of people. It’s arguable those are illegal as general solicitations. Most responsible demo days make some effort to ensure that the audience consists of accredited investors (those who can legally invest in private startups), but not all of them. The law is burdensome here.

And I kind of get that Kickstarter could be a great way for a company to raise money. There are times I’d love to put in maybe a grand into a company if lots of other people do. That should probably be legal for more people than just accredited investors. Part of me worries that the “good” investments (apologies for the intentional scare quotes) could get investment anyhow, and that would leave only the bad ones, but I think, in practicality that won’t always be the case. I love Kickstarter and can see many great uses for it as a means to raise funds for a new company. And I recognize not every entrepreneur with a great idea has the network I do. Who you know shouldn’t necessarily be an obstacle to getting your great idea funded.

But I cannot shake my concerns about the JOBS Act on a more macro level, for precisely the reasons I mentioned in my article a year ago. SOX was implemented for a reason. The last time there was a dot com boom, things got really out of hand when the investing expanded beyond the tech investor class. Chris Dixon has said, “I think it’s a good thing that the speculation on large private tech companies is happening in secondary markets where the risks are being taken by institutions or wealthy individuals. This is in stark contrast to the dot-com bubble of the 90s where many of the people holding the bag when bubble popped were non-rich people who bought stocks through public markets. Obviously this could change if we have a bunch of tech IPOs.”

Whether the bubble exists yet or not in tech, it’s still largely confined to the wealthy and the tech investors (though institutional and retirement funds are definitely migrating in). So. Now we’re going to change that? We’re going to gut the very regulation that is preventing us from making the same mistake twice right when we might need it most?

The bill is going to pass. I am grateful for the Senate’s tweaking of the various limits in the bill to make things safer. I’m proud that the Internet community rallied around this cause, flexed its growing lobbying muscles and got the job done. I’m psyched that I won’t be breaking the law by going to a demo day. And good on ya, Kickstarter, if you can start launching companies as awesome as the products you’ve launched.

But I can’t shake my thoughts of the victims of the Enron accounting scandal, whose lives were profoundly impacted by their lies. Sarbanes-Oxley was not ill-conceived, and most of its more onerous provisions are not applicable to pre-IPO startups and small public companies.

More than that, I’m vaguely amazed that after our financial meltdown, amidst our collective guilt and realization that we missed our window for re-regulating our financial industry, that one of our proudest accomplishments is to DE-regulate further.

Finally, I can’t shake my own words from a year ago: when we see SOX being gutted, that’s a sign that the bubble is coming.

Rick Webb co-founded The Barbarian Group, a digital ad agency, and is now a writer and angel investor in the tech industry. JOBS Act Jitters