Mary Jo White
United States Securities and Exchange Commission
100 F Street, NE Washington, DC 20549
Re: Finalizing Equity Crowdfunding Regulations (Title III of the JOBS Act)
Dear Chair White:
On behalf of the Los Angeles County Economic Development Corporation (LAEDC), an organization dedicated to promoting job growth, economic expansion, and increasing the overall global competitiveness of Los Angeles County, please accept this letter urging the Securities and Exchange Commission (“SEC” or “Commission”) to finalize the investment crowdfunding regulations under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”) to implement the requirements of Title III of the Jumpstart Our Business Startups Act (“JOBS Act”).
Fundamentally, the crowdfunding provisions of the JOBS Act were designed to help provide startups with capital by making relatively small offerings of securities less costly. The new regulations would propose rules governing the offer and sale of securities under new Section 4(a)(6) of the Securities Act and exempting securities sold pursuant to Section 4(a)(6) from the registration requirements of Section 12(g) of the Exchange Act. Under the JOBS Act, a company-issuer may sell up to $1 million of its securities per 12-month period, and investors will be permitted to invest up to $100,000 in crowdfunding issues per 12-month period.
The LAEDC believes that the potential direct, indirect and induced economic, jobs and wage income impacts from unlocking the equity crowdfunding gates to more of the investing public could be fairly significant. Not to mention the societal benefits that would accrue from accelerating the development, growth, commercialization and scaling-up of nascent enterprises and innovations with dramatic effects on our health, wellbeing and quality of life.
Two weeks ago, the LAEDC released a “High Tech in LA” study, detailing the employment and economic contribution of L.A. County’s fast burgeoning high tech economy. The study shows that L.A.’s high tech sector employs more than 368,500 people (2013) and, together with the indirect and induced impacts, supports approximately 763,600 jobs in L.A. County.1 In total, our high tech sector contributes $108.3 billion to our regional GDP (2013).2
However, we know that one critical challenge faced by many of the businesses in our high tech industries – including biopharmaceuticals, medical devices, software design, on-line publishing and telecommunications – is the dearth of (equity and debt) capital. Of particular concern to us as an economic development organization is the shortage of seed and development-stage financing that is required for technology-based startups to successfully commercialize their solutions, which can take years (especially in the cases of biotech and clean tech) from conception to “proof of concept” (development) to realization. With the right rules in place, equity crowdfunding could provide one viable solution to bridge this financing gap.
While we certainly recognize that equity crowding is not without certain built-in risks and challenges, e.g., credible pricing, valuations, liquidity and market confidence, we do believe that the technology, financial substructure (e.g., portals) and complex regulatory organization are readily available to mitigate and perhaps overcome many of these challenges and help these markets operate in a fair, transparent, accessible and standardized way.
On the regulatory front, the SEC has made tremendous progress already in terms of balancing the need for efficient capital formation against the protection of investors. And we certainly acknowledge the considerable work that still must be completed by the Commission. Nevertheless, we want to hold you to your commitment to finalize the rules in short order and, to this end, urge the Commission to make it a priority to finalize the Title III rules this calendar year in furtherance of our local, regional, state and national economic, innovation and job generation aspirations and ambitions.
Thank you in advance for your support on this key opportunity to bring much-needed equity financing to L.A.’s start up and growth companies.
Chief Operating Officer, LAEDC
Director of Innovation, LAEDC