The Main Street Growth Bill and how it can help startups launch and grow
The Main Street Growth Bill is an act sponsored by Rep. Scott Garrett. The primary aim of the bill is to create a secondary market called “venture exchanges” specifically for venture capital investments. This will help “early adopter” investors in startups to sell their shares. In turn, other investors can buy or trade these said stocks.
The summary of the bill reads:
H.R. 4638 provides for the creation and registration of venture exchanges. The bill would require the SEC to approve or deny the application of a venture exchange within six months or the application would be deemed approved.
Key Points of the Bill
There are two important points that this bill is pushing. The relevant part of the bill revolves around these venture exchanges.
· Creating a marketplace. Venture exchange is a secondary marketplace for startup investors to buy, sell, and trade.
· Expedite venture exchanges. When a business applies for venture exchange within six months (if the SEC doesn’t reject it) it’s considered approved.
When startups are capable of trading private stocks in a marketplace, they reduce investment risks early on. This law extends this privilege to startups even before IPO (Initial Public Offering).
Creation of IPO’s have been declining since the 2000. Offering something before IPO that provides liquidity improves access to capital and promotes innovation. These privileges extend to crowdfunded startups as well.
How This Can Help Your Startup
The most obvious benefit will be felt by small startups with under $1 million or less market capitalization.
Since trading required SEC permission before this bill, companies need to IPO. That can be an expensive proposition. This bill affords a few advantages:
· Venture securities can be traded in a secondary market.
· Some securities are exempted from SEC registration as long as they follow proper disclosures.
· Venture securities apply to crowdfunded startups. So it will benefit your startup if it falls under this category.
· Startups don’t need to rush IPO in order to stay liquid.
· More access to funding.
In the past, unaccredited investors have to wait about 5 to 10 years to see profit. Note that liquidity will only apply if startups go public or get bought. So that’s still a big if. With the venture exchanges investors don’t need to wait to cash out.
Funding is one of the most important things a business needs to survive. This is not easy to have when investors are risk-averse. With the advent of H.R. 4638, investors can rest easy knowing that they can see liquidity in the secondary market even before selling the company or going public.
Startups help improve the economy by providing jobs to people. It’s hard to stay afloat when there are no funds coming in. With venture exchanges, many investors won’t shy away from investing in small startups.
It’s a win-win scenario when legislation removes hindrances from small businesses. Ill-liquidity of small securities is not 100% solved, but this is a great start for many entrepreneurs and investors.
