President Obama called crowdfund investing “game-changing” when he signed the JOBS Act into law on April 5, 2012. Many in the USA are already calling 2013 ‘the year of the entrepreneur’. This new US law creates a financial vehicle for community financing that the average American can use to invest in entrepreneurs and local businesses they believe in and trust.
Simple quick calculations show that if Americans invest just 1% of their savings via crowdfund investing, this policy change will deliver over $300 billion to the small businesses, which will stimulate entrepreneurship, innovation and job creation. These results are achieved without any US government spending. It’s all good news for those in the US, but the same may not be said for other countries that are slow to move, as this bold move by the US may see a seismic shift in the balance of funding and investors worldwide.
Here’s a potential scenario that must be considered….
January 1, 2013 – the new legislation comes into play in the US. Small businesses in the US turn to this new vehicle to seek funding. The average American starts to invest in businesses that they become familiar with. And the economy starts to bloom Stateside.
Further abroad (say, in Australia) where such free-thinking laws are not in existence, entrepreneurs and innovators who are finding it tough to secure funding locally turn their attention to overseas*. Funding comes in, and ownership goes off shore. Great for the US, but for the country in which the entrepreneur sits, they are facing the potential outpouring of billions of dollars each year until their governments catch up.
President Obama, speaking about crowdfund investing, has been quoted as saying “when we find rules that put an un-necessary burden on business, we will fix them”. His actions surely back the rhetoric, and places the US in good stead as far as small business goes. By addressing the needs of small business, Obama has focused on the key driver of the American economy. With small business representing 99.7% of all companies in the USA today, and with these businesses creating 60 to 80% of all new jobs, no other single piece of legislative change has the potential to drive economic stimulus like the JOBS Act.
In Australian the same can be said about the country’s reliance on small business. Of the (approximately) 2million businesses actively trading in Australia, around 96% were small business, with just 3% being medium-sized and less than 1% considered as large companies. However, architects of Australian fiscal policy prefer to wait a year or two before considering whether to change legislation (like the implementation of the JOBS Act). In the interim, the winners will be the US public, who will be able to invest in and enjoy returns from local and foreign companies. The other winners will be US companies who will be operating in an environment which allows investment from a broad range of locals who know and trust them. In the short term, companies from outside the US will gain by the sudden availability of US funds, but the short term gain will surely give way to longer term losses as the wealth from profits is sent back to Uncle Sam at the expense of the economies in which the profits were generated.
“He who hesitates is lost” – it will only be time that dictates the losses that other countries will feel by not responding as quickly and in as forward thinking a manner as the US with the JOBS Act.
* Currently there are no plans to make Crowdfund investing legal in Australia. For an Australian business to take advantage of the funding made available by the JOBS Act, they will need to register as a US company and satisfy the necessary requirements in doing so.