Some familiar faces among AngelList's petition to pass the JOBS Act. (via angel.co/jobs-act/thank-you)

Update: On March 27th, the House passed a reconciled version of the JOBS Act, which includes the provisions from the Senate's CROWDFUND Act, detailed below.

This afternoon, the Senate passed the Crowdfund Act by a resounding 73-26 vote. If you've been following the JOBS Act, which has won support from venture capitalists and founders alike (for evidence, just scroll down to this petition's list of supporters), the Crowdfund Act is the Senate's version of the JOBS bill, which now includes the requirement that startups looking to raise capital do so from SEC-approved websites.

The JOBS Act, short for  Jumpstart Our Business Startups, centered around rolling back some investor protections in the name of making it easier for small businesses to raise capital.

Although the JOBS bill passed in the House in a 390-23 vote a couple weeks ago, because legislators were successful in amending a number of "more stringent safeguards for investors," the Crowdfunding Act will need to be reconciled with the JOBS Act and head back to the House, rather than to President Obama for approval, reports Politico.

The debate surrounding the legislation was whether rolling back protections would lead to fraud. The tech community overwhelming argued that regulations such as the 500-shareholder, being able to publicly discuss raising funds, and using crowd-funding platforms were holding them back. The amendments in the Crowdfund Act are designed to protect non-accredited investors, or as TechCrunch calls 'em, "Your Mom."

If it passes in the House, what will it mean for startups?

On Fortune.com, Dan Primack has a nice breakdown of the relevant changes to existing SEC regulations:

Shareholder Rule

Currently, once you hit the 500 shareholder cap, companies have to make their financials public. This bill would increase the threshold to 2,000 shareholders, which Mr. Primack calls an improvement, but "just as arbitrary."

Crowdfunding Platforms

Mr. Primack calls this the "Kickstarter-for-equity provision," which would enable platforms like WeFunder, which has been waiting for Congressional approval, to let startups issue shares in exchange for equity.

"This basically is for companies that either are too small for traditional angel/VC funding, or companies that are unable to secure such capital. In other words, we're probably talking about a proliferation of thousands of lousy companies. But if just one or two become the next Facebook, then the trade-off is worth it."

Well, either that or the Enron of startups swindles money from regular folks and no one gets to write articles about how Silicon Valley "is the opposite of Goldman Sachs," anymore.

As one commenter noted in our post about WeFunder, the concept opened up opportunities, but "It sounds like you forgo the control that comes with a larger individual investment, as well as those juicy preferred dividends that come with many Series A investments (great news for the startup though!!)."

General Solicitation

Currently, Regulation D prohibits issuers, which includes privates companies and some VC and private equity funds, from "general solicitation" of investors. The new bill says sayonara to that restriction although only accredited investors can participate in Regulation D offerings. On the one hand, it means you won't have to wait for a leak to the press to find out that Chris Sacca is raising a new fund. On the other hand, take a look at the charges the SEC recently brought against Felix Investments to get a picture of how quickly things can turn into a boiler room scenario.

Reducing Costs of Going Public

Perhaps you've noticed that hot startups from Zynga to LinkedIn to Groupon and soon Facebook have gone public recently? Well Congress hasn't. This provision is to address what Mr. Primack calls "the imaginary IPO crisis." Thus to reduce the costs of going public, the bill proposes reducing investor protections, such as one that prohibits analysts at investment banks from offering pre-IPO research on their own clients. As Mr. Primack noted earlier:

"Going public is not supposed to be a cakewalk. We've already been through an IPO environment where all you needed was a clever URL and a fuzzy mascot, and the results weren't pretty."

Protection for Investors

One of the amendments to the bill that passed today will require companies raising up to $1 million to share their financials with prospective investors. The same amendment would prevent investors with less than $100,000 in annual income from putting more than 5 percent of their income into a crowdfunded security. You can thank Congress later, Mom.

BAD KITTEH.

In case anyone was wondering why Groupon, the tech press's favorite new punching bag, would restart its delayed road show and try to go public right now (during the biggest IPO backlog since 2000), there are a couple easy answers.

Bloomberg reports that Groupon (1) both needs cash to grow and (2) is close to the 500-shareholder threshold, at which point its required to report detailed financial information every quarter. Usually that's the point where startups figure: Eh, might as well IPO.

Groupon, which is seeking to raise as much as $540 million, but only selling five percent equity, claims that it doesn't need the money for at least a year and isn't desperate for the cash. But as Bloomberg reports:

"Even so, the biggest provider of online daily deals owed almost twice as much to merchants at the end of September as it held in cash. Marketing costs rose 37 percent in the latest quarter, four times as quickly as its cash pile. . . The company had $243.9 million in cash at the end of September and still owed merchants $465.6 million. The 8.4 percent increase in cash from the prior period was outstripped by the rise in marketing costs, which jumped 37 percent to $234.4 million."

What happened to that $1.11 billion Groupon raised? Well, 85 percent was used pay off early investors and founders, including Andrew Mason, rather than funding growth. Hence, the cash crunch that Groupon, which issued an amended filing promising to spend less on useless marketing, now finds itself facing.

But none of this seems to have deterred institutional and retail investors. According to Bloomberg's sources, the company is considering raising the price range for its stock since there's higher-than-expected demand ahead of holiday season.

Huh, well since Groupon doesn't need that cash, maybe they can use it to pay their sales staff those alleged millions in overtime they're owed. Or at least let them use the bathroom guilt-free.

A new bill proposed by Reps. David Schweikert (R-AZ) and Jim Himes (D-CT) would amend the Securities Exchange Act of 1934, setting aside a number of limitations that push fast growing tech companies to IPO.

A draft of the bill obtained by Dan Primack at Fortune highlights three key areas. Changing the so-called 500 shareholder rule to accommodate 1,000 stake holders. This is the threshold at which the company would have to go public, or at the very least, begin to reveal financial details.

Doubling the number of shareholders pales in comparison to the following changes, however, because it still sets a numerical limit. The proposed bill would also exempt employees and accredited investors from that shareholder count.

In today's tech world, that would mean a company like Facebook could continue to raise money on the secondary markets, where only accredited investors are allowed. While normal mom-and-pop stock pickers would be shut out, private capital from wealthier individuals could continue to fuel a start-up's growth for years without the company revealing significant financial details about its performance.

See Also: NY Times Jumps Into Fray Against Lodsys

The leading lights of the New York tech scene are divided on this issue. “The best companies will most likely eventually go public and deal with the issues that being a public company presents, but the value creation that occurs pre-IPO has been and will likely to continue to be very significant,” Fred Wilson wrote on his blog, A VC. “And it would be a fantastic outcome if the SEC decides to allow the general public to be a more active participant in the value creation that happens while companies are still privately held.”

Others in the New York venture community see the focus on private markets as misplaced. “I think the SEC and White House should be focused on helping small companies to go public,” Greycroft’s Alan Patricof told Betabeat by phone. “That would have a greater benefit for entrepreneurs and our economy than expanding the scope of these private markets.”

As I wrote back in April when word first emerged that the SEC was mulling changes to the 500 shareholder rule:

According to the WSJ, the average number of IPOs each year has plummeted, from 503 during the 1990s to 130 during the aughts. At the same the transactions in private shares has jumped from $2.4 billion in 2009 to $4.6 billion last year. But has the general public really missed out on an enormous opportunity, as Wilson suggests? Certainly LPs in the nation’s top venture funds may have seen great returns, and USV has some big winners in its portfolio of private companies. But as an industry, venture returns over the last decade have been flat to negative.

If the SEC’s response to the boom in private markets is to broaden access to them, both by increasing the pool of possible stake holders and relaxing the ban on soliciting buyers, then it needs to put in place new rules as well. That would help to ensure that platforms like SecondMarket and Sharepost become a productive new paradigm for funding young companies, not an artifact of the cyclical boom and bust in tech, with a new class of smaller investors left holding the bag.