JOBS Act risks having more Groupons

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Maybe President Obama should have bought shares in Groupon’s I.P.O.

If he had, he would understand what some Groupon investors may be feeling as he prepares this week to sign a new piece of legislation to help start-ups get financing. Had he purchased $10,000 worth of shares on the open market on the first day of public trading for Groupon, the online coupon company based in his hometown Chicago, he would have lost a good chunk of his investment, putting him in the red by almost $4,100 today.

That means he would have lost about 41 percent of his investment in Groupon in just five months, while the Nasdaq rose some 16 percent. All the while, Groupon has faced nagging questions about accounting irregularities and continued losses. This is despite the fact that its co-founder Eric Lefkofsky had publicly promoted the stock – against Securities and Exchange Commission rules – saying that “Groupon is going to be wildly profitable.”

So Mr. Obama may want to weigh the fate of Groupon’s investors as he sits down on Thursday to put his signature on the Jumpstart Our Business Startups Act. That legislation is intended to help start-ups raise capital and go public, but may also lead to many more money-losing, Groupon-like I.P.O.’s.

The measure, known as the JOBS Act, is a well-intentioned bill with bipartisan support aimed at making it easier for small businesses to find investors early and to continue to grow in the public markets by lowering some of the bureaucratic barriers. It also promotes “crowdfunding,” a mechanism by which entrepreneurs can raise up to $1 million online from individual investors with minimal financial disclosure.

Its goal is noble: start-ups and small businesses are the lifeblood of our economy, and it is hard to argue with helping entrepreneurs build businesses and hire employees.