Washington entrepreneurs need an easier way to fund start-ups, and people here should be able to invest in them, said Rep. Cyrus Habib, D-Kirkland.
“I view this as democratizing start-up investment,” said Habib, who is sponsoring House Bill 2023 with Reps. Cindy Ryu, D-Shoreline, and Hans Zeiger, R-Puyallup. “This bill would open it up to all of us.”
The Washington JOBS Act would give new businesses access to crowd-funding — defined in the bill as “raising money through small contributions from a large number of investors” — and allow anyone in Washington to invest in a new venture up to $2,000 or 5 percent of their annual income or net worth in a one-year period.
People who make more than $100,000 a year would be able to invest more, up to 10 percent of their annual income or net worth.
Securities laws written after the stock market crash of 1929 had long made it illegal for companies to sell private equity to unaccredited investors, meaning outside the stock market.
It’s also been illegal for most people to invest outside of the stock market. People can donate to new ventures through portals such as Kickstarter or Indiegogo, but they can’t buy ownership of the company.
Under the Securities Act of 1933, an accredited individual needed to make more than $200,000 per year or have more than $1 million in assets, excluding the value of his or her home, in order to invest outside the stock market.
Congress has passed a federal version of the JOBS Act, signed into law two year ago. The Securities Exchange Commission is still working on rules to regulate the act’s section on crowd-funding.
The House Business and Financial Services Committee on Friday held a hearing on the bill, which Habib said would make investing easier and less burdensome than the federal law for people in Washington.
Michael Libes, founder of the Bainbridge Graduate Institute, a 12-year-old accredited business school, testified at the hearing. He said only 3 percent of people in the U.S. can invest in anything they want – the other 97 percent can only invest in the stock market.
The federal law is not usable without rules from the SEC, he said, and even then there’s still uncertainty about whether it will be workable for most people.
“We don’t have final rules, so we can’t follow the law,” Libes said, adding that it’s similar to if a law was passed to raise the speed limit, but no one set a number.
Habib expects House Bill 2023 will be successful because of bipartisan sponsorship, no opposition and support from agencies.