When Congress passed the Jumpstart Our Business Start-ups Act (“JOBS Act”) last year, the rationale sounded right: some “good ideas” don’t come to market because entrepreneurs often lack the necessary connections to privately raise significant amounts of capital. If they could get such funding, the argument went, jobs would be created. And that’s a good thing.
So part of the JOBS Act now permits private firms, including start-ups, to seek equity investments without registering shares for sale, though only from accredited investors. But if implemented, other provisions of the law would allow entrepreneurs and others to use crowd sourcing or social media to troll for money from virtually any would-be private investor. And that’s not such a good thing.
The economy has never suffered from a lack of good ideas. Anyone can come up with a good idea. I have an idea for a SCUBA wet suit that can keep you five degrees warmer, another for a cell phone battery that only needs charging once a month, and a car wax that makes your vehicle “stealth” to police radar. Anyone with even an idiotic idea can start a company, but it takes talent and experience to manage it and to make the business scale and grow. And consumers – who under the possible extension of the JOBS act will in essence become the Funding Source of Last Resort – are in no position to make such success calls.
Read the full post at Forbes.
Howard Anderson is the Bill Porter (1967) Distinguished Senior Lecturer of Entrepreneurship at the MIT Sloan School of Management and a Senior Lecturer in the Martin Trust Center for MIT Entrepreneurship.