There are a few initiatives that will impact small businesses in this November’s elections. One of them is Measure J — the San Diego Business Interests Disclosure Charter Amendment.
A yes vote would require individuals to disclose their identities when they have financial interests in business contracts with the city that exceed 10 percent of the contract or when they have more than a 10 percent owner interest.
The measure would not require disclosure from public agencies and publicly traded companies contracting with the City. These exceptions are designed to address cases where personal financial interests are precluded by law, or where corporate ownership information is publicly available. That sounds good on the surface, but in reality it could have greater negative consequences on small businesses.
Our not-for-profit Lift Development Enterprises works with a variety of established small businesses with average revenues of $50,000 to $250,000 that are seeking to expand their firms with growth capital. Measure J is an initiative that could have a large impact for these types of companies. On the face of it, this measure has positive intentions — to try to prevent certain conflicts of interest. However, at the same time it could be taking away investment dollars that small businesses need.
Complicating the Process
If the measure passes, requiring private investors to reveal their identities and economic interests that exceed 10 percent, some companies could demand investors and others recuse themselves if they have multiple conflicts of interest. This would directly impact anyone who does business with the city and has investments in publicly traded companies.
Further, Measure J could be detrimental to businesses because it would slow down transactions. More paperwork would need to be filed and approved, which could scare off investors who may not want to deal with the hassle. Investors may not want to invest more money into businesses due to the fact that it will be much more time consuming, less convenient, and their return on investment may not be as high. Small businesses would pay the price for this measure.
Private vs. Public
Companies from our program like CarAudioCare are looking for outside investments because it needs to raise more capital to grow its repair services business. In order for a company like this to grow, beyond limited amount of debt available, it will likely sell in excess of 10 percent of the company to obtain needed investment. If this measure passes, it could make it much more difficult for founder Robert Cruz to find investments. If CarAudioCare were to contract with the city, it would need to list any investor with more than 10 percent ownership of the company.
Investors will be much more hesitant to expose themselves to the requirements for a private investment of this type, as it does not allow them to keep this type of information private. This could drastically slow down investment for businesses like CarAudioCare. In turn, it will slow down the ability for companies like this to create new jobs.
This side effect of Measure J is not being carefully looked at from the perspective of small business owners looking to expand and create job growth for our local economy. On the surface, measure J looks like a step in the right direction. But when you dig deeper, the negative consequences will outweigh its positive intentions.
Kim Folsom is the founder of Lift Development Enterprises and co-founder and CEO of Founders First Capital Partners, a small business growth accelerator and venture fund.