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Support Legislation to Remove Barriers to Small Business Investment

October 24, 2011

Dear Member of Congress:

      On behalf of the 362,000 members of the National Taxpayers Union, I encourage you to support H.R. 2930, the “Entrepreneur Access to Capital Act,” and H.R. 2940, the “Access to Capital for Job Creators Act.” Introduced by Rep. McHenry (R-NC) and Rep. McCarthy (R-CA) respectively, these bills would ease the regulatory constraints that are preventing entrepreneurs from finding and utilizing the capital required to get their businesses off the ground.

      Early-stage entrepreneurial activity has been steadily declining in the United States, putting America’s innovation-based economy at serious risk of losing out to foreign competitors. The problem is not the result of a lack of ideas or entrepreneurs, but an inability to match potential sources of capital with investment opportunities. Recent estimates from the General Accounting Office reveal that the financial markets fell $60 billion short in meeting the demand of small businesses for financing in their formative phase. Given the important role that start-ups have played in economic dynamism and job creation, the federal government should be doing all it can to strike the best possible balance between investor protection and capital formation.

      The Entrepreneur Access to Capital Act would help accomplish this goal by allowing businesses to accept and pool donations of up to $5 million without registering through the Securities and Exchange Commission (SEC), which is cost-prohibitive for many small offerings. Traditionally many small startups have difficulty securing financing due to a combination of factors including the scarcity of bank lending and the focus of most “angel investors” on larger projects. By allowing “crowdsourcing” – raising small amounts of money from a large group of investors – H.R. 2930 would unlock a potent source of capital to help turn entrepreneurial ideas into centers of economic activity.

      In order to further harness the power of small investors, the Access to Capital for Job Creators Act would help emerging companies attract resources by eliminating the current ban against general solicitation. The SEC has interpreted this prohibition very narrowly, only allowing the company to contact investors or intermediaries with whom they have a preexisting, substantive relationship. This not only eliminates crowdsourcing as a strategy, but severely hampers entrepreneurs’ ability to attract investors of any means, however modest. By thoughtfully reconstructing this regulatory barrier, H.R. 2940 would open up a variety of marketing techniques to connect start-ups with latent investors.

      By passing the Entrepreneur Access to Capital Act and the Access to Capital for Job Creators Act, Congress can bring outdated securities regulation into the modern world of the Internet and social networking while also jump-starting America’s economic engine. For these reasons, NTU supports H.R. 2930 and H.R. 2940, and any roll call votes on these bills will be significantly weighted in our annual Rating of Congress.


Brandon Greife
Federal Government Affairs Manager