Winning at Small Ball

Indulge me as I use a baseball analogy to outline how the JOBS Act will make it possible for venture capitalists to win big in 2013. That’s if they are willing to look at the game differently and learn to play small ball.

As documented in Michael Lewis’ book, “Moneyball: The Art of Winning an Unfair Game,” small ball is an offensive strategy to get batters on base and score runs using stolen bases, sacrifice plays and walks. Instead of home runs and big hitters, on-base percentages matter more.

As the CEO of a membership-based, do-it-yourself workshop and prototyping studio, this is the game I want to see more venture firms play.

Today, there are 90% fewer IPOs valued under $50 million than there were two decades ago. When young entrepreneurs step up to the plate, the market signals them to “go long or go home,” never even reach first base. The JOBS Act encourages more entrepreneurs to get on base via three critical provisions, allowing crowdfunding to help raise money; opening access to capital for job creators; and re-opening U.S. capital markets to emerging companies.

Let’s use my company as an example. TechShop is a brick-and-mortar, change-the-world, service-oriented, retail play. Finding investors interested in retail is tough. But TechShop is also an economic jobs engine, a STEM education platform and an open access incubator for innovation. It’s fueling a new generation of businesses, employers and jobs.

The JOBS Act provisions make it possible for a company like ours to get on base and make small ball investing more appealing for venture capitalists. It creates a farm system that gives innovators the resources and experience they need to move up to major league venture investment.

Our investors fall into two categories: strategic and social. These groups, along with local investors, are willing to take on risks and have lower return requirements. They are willing to fund a so-called “walk” for long-term benefits because they believe in our ability to provide critical skills development, workforce retraining and hands-on projects within our community.

In its early years, TechShop would have been a perfect candidate for the crowdfunding provision of the JOBS Act. All the VCs we talked to in Silicon Valley turned us down at that stage. Without the exemption provided by the California Safe Harbor regulation that allowed us to let qualified investors know we were raising money, we would not have been able to grow to six locations or attract such strategic partners as Autodesk, Ford, DARPA and GE.

Had we been able to raise money through a portal and to advertise and market our fundraising, our expansion would have been much faster. The ability to take in up to $1 million without audited financials will help a lot of startups.

A JOBS Act provision makes it legal for companies to advertise when seeking money from qualified U.S. investors. Finding these investors will become easier with an explosion of compelling startups.

It also reduces the reporting requirements of companies under $1 billion in revenue, which relaxes the problems that Sarbanes Oxley has created for growth companies. With easier entrance to the public markets, there will be more opportunity for liquidity events.

Because of the JOBS Act, venture firms will be able to successfully play small ball because “crowds” will increasingly take on the riskiest, early-stage companies, while qualified investors will take on more Series A risks in segments that many investors may not even be watching, such as retail. Then at Series B or C, a VC firm can step in and prepare such companies for an IPO more quickly.

Small ball, thus, becomes a winning strategy.

Mark Hatch is CEO of TechShop.