Tech pundits and those who cover the industry have promoted JOBS Act as a “crowdfunding” bill that will allow any self proclaimed entrepreneur to raise money through social media. Something similar to Kickstarter for an average Joe to join in the social media gold rush by investing in everything from apps to flying skate boards.

That’s not a bad thing, it will spur innovation. But, at what cost? Less transparency, gradual deregulation and little accountability. Why do we have such a short term memory? In 2008 we saw what happens if any part of an industry, especially one that involves financial markets, is deregulated.

Here’s what bothers me:

Increase in number of shareholders

Before, a company had to go public if it reached 500 shareholders and assets worth $10 Million. This law is primarily responsible for Facebook’s impending IPO as it reached the 500 shareholders mark. The bill relaxes the requirement by increasing the number of shareholders to 2000.

Clearly, 500 is high enough number of shareholders for a company to start opening up its books for investor scrutiny. Increasing the number to 2000 will delay the scrutiny thereby allowing startups that are in red to continue operations in red because of outwardly impression of the next big thing.

Sarbanes-Oxley

The bill adds an “emerging growth companies” category relieving startups from certain regulatory and disclosure requirements when SEC registration statement is filed to go public. IPOs have 2-year phase-in period to comply with Sarbanes-Oxley Act, the result of Enron debacle, but the provision in the JOBS Act will extend the period to 5 years.

I agree that there are compliance costs associated with Sarbanes-Oxley Act but there was a reason the Act was put into place. We had a disaster that gulped Arthur Anderson and Enron. Since the Act being the law, we haven’t had a single accounting scandal that could devastate markets. Relaxing a requirement proven to have succeeded in its goal of resisting fraud is a step in the wrong direction.

Last word.

According to Ryan Caldbeck, who penned an article on TechCrunch recently supporting the JOBS Act, “startup investing is reserved for the 1%” but it doesn’t need to be that way. Sorry, but that’s exactly how it is suppose to be. These are some really rich 1 precenters who can take the risk and have the experience.

The argument Caldbeck uses to persuade his readers that JOBS Act is a good thing is the same argument used by lawmakers who wanted everyone under the sun to get a mortgage. It was a slap in the face to everyone who worked hard, saved for that down payment and maintained good credit. History is repeating itself again, and this time, it’s not the housing market.

Irony is, accredited investors and VCs will be the biggest losers of this bill, even though almost all of them are die hard fans of the bill.

One more thing.

Further reading:

Silicon Valley taken for a ride by JOBS Act

Soon Even Your Mom Can Invest: Senate Passes Crowdfunding Bill 73-26

Between October 2003 to December 2011, I made $7602.89 using AdSense. That’s little over $900/year. Not much by any standards but I don’t do this for living so I am not going to complain.

2007 was my best year because I was running number of websites that I ended up selling because of time constraints. Websites are akin to dividend paying stocks; more you have, more money you make. Later, I decided to concentrate on just three sites; my personal blog, accounting and tax forum and this blog.

I have never talked about my earnings in the past because I didn’t want to be seen as a blogger who is in it for money. I am talking about it now because I feel everyone should blog and most don’t because they don’t think it is rewarding. It can be as rewarding as you want it to be, just don’t quit your day job.

Facebook’s choice of audit firm, Ernst & Young, didn’t sit too well with me. They audited Lehman Brothers, Bernie Madoff etc and of course gave the opinion that the financial statements “present fairly, in all material respects, the consolidated financial position” of the said company. That wasn’t entirely true, was it? Apart from that, they also gave a big thumbs up to Groupon and then SEC had to step in and ask Groupon that it revise it’s shady accounting. likes 0.

I use Facebook’s app more than I use the actual website. I am not the only one, majority of the people I know use Facebook on their smartphones. That is good and bad. Good because having access to Facebook on our phones keeps us more addicted to it. It’s like getting cocaine at a drive-thru. Bad because Facebook doesn’t know how to make money off of mobile users yet but I am sure there is something in works. likes 0, likes 1.

S-1 registration statement didn’t reveal the metric that is a standard in online advertising and that omission has lead to speculation about the effectiveness of Facebook ads. I am talking about the Click-through Rate or CTR. Revealing this metric will make it easier for analysts and investors to compare it with Google’s CTR – undisputed leader in online advertising. likes 0.

What worries me most is that Facebook’s true evaluation is not anywhere near the $100 billion territory. 85% of revenue is based on advertising and 12% comes from its partnership with Zynga. $3 billion revenues in 2011, multiply that by 10 and you get $30 billion. In reality, companies are not worth more than 5-10 times their revenues. In perspective, Google is worth around $200 billion and it had $38 billion in revenues in 2011. That amount is in line with the industry average of 5 to 10 times the revenue. likes 0.