Dream and Hustle

Breaking Down the JOBS Act for Brothas and Sistas to Understand What Just Happened

In this article, we are going to try to break down the details of the JOBS Act President Barack Obama proposed during the State of the Union and successfully passed through Congress and signed into law. Please keep in mind there is really two reasons why no one else is talking about this historic moment. The first reason is because they don’t know anything about money and capital markets and been trying to push “hustle content” to you all these years. The second reason is these other cats like the mainstream financial media are the current so-called status quo being fully aware what this JOBS Act law enables and scared to death of you understanding what just happened because this is a Black Swan/disruptive event that just occurred.

We are going to talk specific business models brothas and sistas can now pursue but I want you to think on something for a second. See, now you can create a Black-owned media outlet in Chicago and crowdfund the West Side, South Side, North Side, South Suburbs, West Suburbs and raise enough money to put a television studio around 47th and King Drive, right? With these real estate prices, you can get something super nice for $175K to build upon. With that said why would the Chicago Sun-Times and Chicago Tribune who write more negative than positive stories about Blacks tell you brothas and sistas you can do this and take their market share as a result and you enter the game with a fresh round of funding from the people?

I will say the same thing about the Boule and Radio One – why will they tell you how empowered you are when they spent their whole time conspiring with anti-Black Zionists to make themselves look good and make the rest of us Black folks look like people these Boule cats can talk down upon? You honestly believe Cathy Hughes will want some real non-Boule sista to start up her own chain of IPTV and radio stations through crowdfunding and launch in 50 cities across the nation with a sizable Black population in under a year, giving her competition she never had before? Come on now, you can’t be that naïve to understand why Dream and Hustle is the only real media for brothas and sistas that is bringing to you what our US President of the United States just sign that will benefit us.

You can take your seat right now as you reading this because we are about to break down this JOBS Act for brothas and sistas to fully understand why this is a certified historical moment and game-changer. The law is located at http://thomas.loc.gov/cgi-bin/query/C?c112:./temp/~c112mKCTIc and I encourage you to read it for yourself and understand what it entails.

Emerging Growth Company

The Securities Act of 1933 has been amended to create a new classification/definition of a type of corporation that can issue shares. The new definition is known as an emerging growth company and it now an official designation that you brothas and sistas will want to position yourself as. An emerging growth company is defined as having less than $1 million USD in gross annual revenue that has not issued shares to the public before December 8, 2011 and will be defined as an emerging growth company up to five years after issuing shares to the public. Issuing shares to the public is known as IPO or initial public offering and this is very important.

With that said, you have to consider what type of business entity you are going to operate as. As a general rule and if cats are going to go big, cats typically launch their company as a true C corporation in Delaware and Las Vegas. Do your own research but the reason why cats go this route is because there are other entities in these states that can buy your shares and better lobbying efforts in these states to make it easy to register and stay registered as a corporation. But that is not the reason you do a C corporation there is another reason.

The main reason to do a C corporation is because cats feel it is the best way to sell their shares to investors, do an IPO and establish a true corporate veil. The other forms of business entities does have some liability to the stakeholders including taxes so from what I read about the JOBS Act, an emerging growth company should probably be a C corporation. Another point and this is important is that foreign investors can buy your shares so you can get cats around the world in other financial centers like Hong Kong, Singapore, Dubai investors put money in your hustle from their holdings firm which is not unusual. Most dotcom startups get investment funding from firms like Softbank out in Japan or Russian tycoons and Dubai and Saudi Arabian royalty. However, I do not know if non-Americans can crowdfund and I make a note to make sure the SEC clears this up during their review.

Now with that said, I hope you realize the level of the game you are going to be playing on and how President Obama made it easier for you to get at this game. Because now you can create a C corporation and make it easier to get some of your shares offered through non-accredited investors to own shares and capitalized your venture. If you were going to deal with a Venture Capital firm, you would have to be setup like this so the VC firm just give you $5 million for 20% of your shares and cats will say your “valuation” is $20 million dollars because they assuming the other 80% is priced at that same level.

So I just leaked out the strategy and will put it out there. You should IPO only about 20% to 30% of your shares and keep the rest to yourself. If you crowdfund $1 million on that 20%, your market capitalization is already at $5 million and this is how you become a multi-millionaire by these Forbes/Fortune magazine’s definition. But the reality is, this ain’t going to be just you, we are going to talk about how you need to launch this C-corporation later because you are going to have to get a real management team, give stock options to employees and directors as you launch. But this makes it easier for us to now launch real companies with real talent and that’s a major breakthrough.

However, you must understand before you read further about this setup is that you are a real founder and Chief Executive Officer and you are really in the big boys court. That means you will likely have real directors, not some homeys who just like to talk about money but cats who really know money and business. You also with have a real business that the numbers and the products and the math better be solid with zero margin of error.

In addition and this is the most critical part – your got to be absolutely 100% truthful in your statements about your business. We got a lot of MLM/networking marketing cats in the Black community that like to say blue sky crap about getting with them to make $2,000 extra a month – you can’t pull that nonsense in this arena, son. In fact, if you are the CEO you better not say a damn thing unless you are talking directly to shareholders, investors and analysts and learn what to say and what not to say – get the CFO to say that ish. When someone ask you are you making money, you tell them to go f*ck off because if they were a stakeholder they already would know and if not, it ain’t their business. Keep this part in mind when you think on that C corporation you have to establish to become an emerging growth company.

But let’s talk about the exemptions you have as the emerging growth company because the 1933 Securities Act has been modified. Most of these revisions are actually very exciting and extremely revolutionary if you truly about this like we at Dream and Hustle are. The first exemption I noticed is you do not need to provide 2 years of audited financial data prior to your IPO as an emerging growth company. You do not need to conform to Sarbanes-Oxley or SOX compliance as an emerging growth company. In terms of accounting, emerging growth companies are exempt from rotating accounting firms and mandatory adopting of the latest accounting practices. These are very expensive and cost-prohibitive requirements that forced many companies to avoid going public in the past and what’s exciting is these exemptions make it easier and within reach for brothas and sistas to launch corporate empires without these kinds of initial overhead.

However, let me make something clear and just because you are exempt from doing these things with the SEC, the investment community and the non-accredited investors will expect you to have this level of compliance, trust me on that. It is extremely important I stress this over again, we are going to be launch real companies that will doing things right and not funny business. You should be smart enough to know cats will be hating hard on you being an emerging growth company and you are a Black CEO with these exemptions and benefits to get off the ground and will find anyway to take you down or have cats doubt your venture. I have business/financial/technology experience with all of this unlike these other fake cats and will be helping yall with documentation and best practices on this blog.

So with that said, as an emerging growth company you are going to have to look at the steps that need to be done. First you going to have to get a C corporation up and running and you are the CEO. Then you going to have to recruit a management team and offer them shares and $1/year compensation to help you launch. Then you going to have to crowdfund and create a presentation to your hustle. You should be smart enough to realize only firms with social and civic responsibility are going to get crowdfunded, not some selfish greedy get rich scheme.

Here is another angle and that is roadshows where you cats are going to have to go to Harlem, go to Atlanta, go to Chicago, go to Los Angeles, go to Dallas and Houston, go to Washington DC and give road show presentations at the community college to potential investors in the Black community to crowd fund your venture. This is already a task for Dream and Hustle to get in touch in community colleges in the Black community to accommodate road shows for Black entrepreneurs to educate potential investors for their crowd funding campaign. We will just send a briefing letter and ask them to work on making accommodations for this and let their students attend to learn how the JOBS Act will work for their students when they graduate to launch business instead of looking for a job.

Brokers, Funding Portals and Crowdfunding Web Sites

There are both regulatory and exemptions outlined in the JOBS Act when it comes to the people who will be engaged in as being in the middle of the actual transaction of selling the emerging growth company shares to the public. The reason why this is important is because most of what I read is actually new opportunities and actually new job titles and positions that can be an industry itself! This is one of the things I’m hearing from other cats is there are going to be new companies created to handle the IPO of smaller companies and even smaller exchanges to sell and trade shares after the mandatory holding period that I will discuss later.

This goes back to what I had in mind in terms of revitalizing Detroit as a financial hub for the hood-based businesses. Someone is going to have to facilitate underwriting these IPO to the crowdfunding public as well as other non-accredited investors as Wall Street and the current status quo only care about accredited investors. I think Detroit or Atlanta would be great cities to be the financial hubs due to their airports and business-centered environments for brothas and sistas but I’m highly in favor of Detroit to be the city to be the financial hub to accommodate IPOs and even host stock market exchanges.

From what I read in the JOBS Act, brokers and dealers are allowed to publish information about emerging growth companies even if they are participating in the selling of the shares. This cannot be done with Wall Street IPOs and this is probably to help get the word out about the emerging growth companies to the public who do not have access to mainstream media. This is definitely a winner and why we at Dream and Hustle love this JOBS Act so much and is the best legislation President Obama proposed and signed into law.

In regards to a funding portal, they have to be registered with the SEC and comply with SEC rules. A funding portal is basically the “portal” in the middle that handles the transaction. I mentioned this setup before in setting up a mobile money framework where they are intermediaries that can transfer the mobile money account from a Texas customer to a Chicago merchant – I got that from the funding portal setup. Their job is to handle all of the people who want to pitch in $5 and their money and get them the shares they are asking for. This is a new type of business that does not exist yet but cats are scrambling right now to get up and running and I would strongly advise Mayor Bing in Detroit to declare a financial sector in his downtown district and bring these types of businesses there and turn Detroit into a financial hub for emerging growth companies.

In terms of crowdfunding, the law basically set restrictions and instruct the SEC to help define this area to make sure there are no abuse on the crowdfunding practices. Some of the things that come to mind is some shady cat offer the same shares on multiple crowdfunding sites and try to take the money and don’t deliver. To be honest, too many audit processes will be in place before something like this will happen but that shady cat will be going to jail for just trying to attempt to pull that nonsense. I truly expect to see a lot of unsophisticated Black folks get their greedy dumb ass locked up trying to game this crowdfunding system that was meant to empower brothas and sistas, not abuse it.

One of things not clear to me is the crowdfunding web site or operation. I do not know if an emerging growth company can create their own crowdfunding web site just to raise money from the public or there will be registered crowdfunded web sites that will solely accommodate the funding activities between investors and the emerging growth company. This is something the SEC will have to clear up and I will be following up on this as this is an important point.

I realize that I probably will not be in the crowdfunding business as it creates a conflict of interest as I will be indeed launching my own emerging growth company in the near future. I do not even know if I need crowdfunding but I would highly prefer crowdfunding than dealing with some racist Venture Capital firm in Silicon Valley on any given day. I bet most Black entrepreneurs agree with me on that point also. However, I may be interested in creating the software for brothas and sistas who want to facilitate the crowdfunding process and offer it to them to launch their own operations.

Non-Accredited Investors

When it comes to non-accredited investors, the JOBS Act is defining limitations on how much they can invest and how to handle the shares purchased. From my understanding, those that make or have a net worth under $100,000 the max they can contribute is up to $5,000 while those who have a net worth or make over $100,000 can contribute a max of $100,000. Keep in mind that net worth may includes your home so if you have a home that has over $100,000 in equity that puts you in the range of being able to contribute the $100,000 max. I have to verify if a home is calculated in net worth, usually it is not but I will verify this.

Now, another part I noticed is that a non-accredited investor cannot sell the shares until after a year of ownership and this is a good thing. The problem that I bet everybody saw was speculators and cats that want to sabotage an emerging growth company buy shares and then want to sell them quickly. By putting in this safeguard, an emerging company can maintain a healthy market capitalization and make moves without worrying about people trying to dump shares out of other than good intentions.

There is not much to be said but the obvious, if we collectively invest in a good idea and get shares and become stakeholders, we help create companies that are socially accountable to our needs and interests. In addition, it is possible for the uncle and aunt of an employee of that startup to buy $5 a share, cats who are related also buy $5 a share, the kids at school buy $5 a share and next thing you know word gets around and $1,000,000 is raised in no time. But all these people are stakeholders and they will believe and advocate that company.

See, what you will see is someone starting a clothing company and the owners hire local cats from the community to manufacture. People will start investing and they will do something else – they will buy that product because they actually own a piece of that clothing as a stakeholder and they will talk passionately about that clothing company to others and brag they own stock in that brotha or sista who founded that company. Kids will hear that ish and want to start their own company when they grow up. That’s the economic empowerment ecosystem that President Obama put into play for us to do for us, support us and invest in us and advocate for us.

Summary

I hope I broke down some of the basics of the new JOBS Act that has revolutionized everything, particularly in the Black community. The most important thing to take away is we now have the opportunity and the responsibility to build new kind of large-scale business models and the ability to raise capital from the people to get it off the ground. However, we are in a new era now and that means we have to be serious about doing things by the numbers, in compliance of the law and understand the public will scrutinized us more and we answer to them now, not to other elitists.

There is one part of the law that is near the end and this is what was written into law:

The Securities and Exchange Commission shall provide online information and conduct outreach to inform small and medium sized businesses, women owned businesses, veteran owned businesses, and minority owned businesses of the changes made by this Act.

It is our responsibility to make sure the SEC has brothas and sistas best interest at stake and I’m working with others to make sure they are held accountable to explaining to yall how this law will help us. In addition, we have to be smart and savvy enough to be on top of this law and don’t let these bigots rewrite SEC regulations in that 270 day period trying to limit the opportunities for brothas and sistas.

As you see in real time right now, none of these other Black institutions and Black media is even talking about this and they always come around at the last minute or when it is too late. We Black folks can’t do that ish no more and that’s not Black leadership either. Black leadership is what Dream and Hustle is going to do and that is be proactive and on top of it and make sure we are there and supporting and making it work from the time it got signed by President Barack Obama to the time I put my money down in a crowdfunded venture to help a brotha or sista do for themselves, their people, their community and their future.