Jumpstart Our Business Startups Act or JOBS Act, is a law
intended to encourage funding of United States small businesses by easing various securities regulations. One of the
primary purposes of the JOBS Act is to ease the pathway to an initial public
offering for small, emerging companies. The Title I of the JOBS Act (The IPO
On-Ramp) deals with incentivizing small private firms to go public, which is
thought to create jobs. However, there are various mechanisms within the Act
that allow firms to stay private longer (i.e. Reg. A and 12(g)).
Additionally, crowdfunding, the initiative that has been getting the most
attention in the media, raises major concerns as a possible hotbed for
Symposium is intended to address these apparent contradictions and discuss the
likely effects of the new legislation.
1: The IPO ON-Ramp
JOBS Act was designed to incentivize IPO filings as a response to the declining
number of small companies that were choosing to go public. At the same time the
Act creates a new category of issuer, the “emerging growth company” that allows
firms additional 5 years to scale up to full public company status.
does the JOBS Act seem to contradict itself in this regard? What does it
say about the faith in the IPO process? Does it provide a mechanism that forces
companies to go public before they are ready and when there is no support in the
market? Or does this provide a cautionary tale about going public too soon?
most important question our panelists will be faced with is whether the IPO
on-ramp is really going to change the trend against IPO filings, and what
caused the decline in the first place.
JOBS Act also creates an exemption from the requirement to register public
offerings with the SEC, for certain types of small offerings, subject to
several conditions. This exemption permits
entrepreneurs to “crowd-fund” their businesses -- that is, small businesses can
raise money from large pools of small investors (limited to $10,000 or 10
percent of an investor's annual income, whichever is less) as opposed to being
able to solicit investment solely from accredited investors. Moreover the Act
allows the use of advertisements to solicit investments (a practice previously
banned by the SEC), and allows the use of the internet "funding
portals", which used to be extremely limited by law.
These changes will expose average
Americans to a new type of investment risks, thus raising the question over
whether the benefits of the crowdfunding exemption justify its costs.