SALT LAKE — As President Obama prepares to sign a series of bills intended to provide funding opportunities for startups, local business leaders and wealth managers are looking now at the potential effects it could have on Utah’s economy.
The Jumpstart Our Business Startups, or JOBS, Act will allow companies to find funding and become publicly traded faster and easier by relaxing a set of regulations from the Securities and Exchange Commission.
The most notable provision in the act is the introduction of crowdfunding, which allows consumers to invest in small businesses and startups without being accredited investors.
Money flow from crowdfunding will be a relief to cash-strapped startups in Utah, said Alan Hall, former chief executive officer and chairman of MarketStar Corp.
“The problem right now is there aren’t enough angel investors and money out there,” Hall said in a phone interview.
Hall said people come to him who want to invest but can’t because they are not accredited investors.
In order to be an accredited investor through the SEC, an individual must have either $1 million in liquid assets or earn $200,000 in yearly income.
With the passage of the JOBS Act, crowdfunding websites may spring up in which the average consumer can choose to invest in startups and receive a stake in the company for a potential return.
But it’s risky.
About 55 percent of startups fail within five years, according to research from the University of Tennessee. In 10 years, 71 percent of businesses failed.
“An adviser isn’t going to recommend this to investors because it’s too high risk,” said Brett Munson, chief compliance officer for Salt Lake-based Lefavi Wealth Management.
But with better access to funding there might be an uptick in successful startups, making private equity a less risky investment.
“I think the failure rate will still be high,” Hall said. “There might be more successes now because they have fuel now where before they were running out.”
Hall recently started Grow America, a non-profit group working to help small businesses and startups in both Utah and the nation. The organization aims to spur job growth by providing funding to new businesses.
Earlier this month, Grow America announced a series of competitions where $250,000 in prizes will be divided among entrepreneurs and businesses with the best ideas.
The winners of the competition may receive more money than previously expected on top of Grow America’s cash prizes once crowdfunding is available, Hall said. The credibility that comes from winning Grow America’s approval will spur a lot of private investment in Utah companies.
“It’s another big log on the fire that would really make things take off,” Hall said.
Others say the JOBS Act may not bring about change in Utah’s economy at all.
Startups and small businesses are not going to target small-pocket private investors, Munson said in an interview with the Deseret News. Because startups are aiming for larger funding that comes from venture capital firms or angel investors, they will not likely advertise to the average consumer.
“I really can’t see it being a game changer,” Munson said.