March 24, 2014
I agree with the proposed changes to Regulation A as a means of implementing Title IV of the JOBS Act. One of my concerns is that the cost of filing a Regulation A circular and qualifying with the SEC is prohibitive for small pre-revenue startups like mine. I understand how important it is for a company to have audited financial statements when they have begun generating significant revenue or when they have substantial assets. But, for small, underfunded companies getting an audited financial statement prepared as part of the Regulation A filing process is too expensive.
I am a technology professional with over 30 years in the IT field. I have developed several companies from scratch a couple of which have been acquired by larger companies. Most recently I have co-founded Workers On Call (workersoncall.com), a freelancing marketplace, by design, a company that creates jobs by enabling anyone with skill to find freelance work opportunities through the Internet.
Our only investment to date has come from the $20,000 we received from Blue Startups Business Accelerator (bluestartups.com) in Hawaii founded by Henk Rogers, the producer of the video game, Tetris. If we had used the entire amount of our funding to pay for an audit and the preparation of a Regulation A circular, we might have succeeded in raising millions of dollars in capital but we would then not have had the capital to build our product until after members of the general public had provided it to us in an initial public offering under Regulation A.
The final revised Regulation A Rule should not encourage companies to spend their limited financial resources on audits and regulatory compliance in order to try to raise more capital. Capital for growth should be easier for companies to raise after they have already started to build the products, services and business processes that are worthy of more capital -- especially from members of the general public. Otherwise, as a startup co-founder, the SEC is telling you to ask people to invest in a pipe dream rather than invest in an operating business.
I believe the Commission should consider an exemption from requiring audited financials as part of the offering circular (even for Tier 2) for pre-revenue, or small companies with limited revenues and assets. That way, companies will not have to choose between paying the costs associated with raising more capital or using the seed capital to build a product and create jobs. I am concerned that without an exemption, the spirit of the JOBS Act will not have been met. It was the purpose of the JOBS Act to jumpstart job creation by helping small companies like mine get beyond the regulatory and financial barriers of raising capital and to get busy growing new jobs.
Please eliminate the financial barrier by creating exemptions that allow my company and others like mine to start a Regulation A offering without being required to provide audited financial statements before we have revenue and capital that makes audits affordable and meaningful to investors.
Please also consider an expedited approval process for companies that would qualify as pre-revenue companies or startups. This will make it possible to go from "test the waters" general solicitation advertising to the final goal of receiving funding quickly enough that auditors would be likely to extend credit to young companies in the event that your final rule still requires audited financial statements for startups. A twenty-day approval process, as proposed, would be perfect if startups had a "safe harbor" that auditors, securities lawyers, and others could rely on when a startup like mine commences Regulation A-compliant crowdfunding.
Thank you very much for this rule making.
Sincerely,
Ted Coombs
http://tedcoombs.com
https://www.linkedin.com/in/tedcoombs