JOBS Act One-PagerBy http://profile.typepad.com/1237764140s22740 // April 7, 2012 in JOBS Act
The Jumpstart Our Business Startups (JOBS) Act is divided into seven "titles," numbered in Roman numerals. This post provides summaries of five distinct initiatives covered across the seven titles.
This is the "IPO on-ramp" section.
A White House press release summarizes this section as follows:
"The JOBS Act makes it easier for young, high-growth firms to go public by providing an incubator period for a new class of 'Emerging Growth Companies.' During this period, qualifying companies will have time to reach compliance with certain public company disclosure and auditing requirements after their initial public offering (IPO). Any firm that goes public already has up to two years after its IPO to comply with certain Sarbanes-Oxley auditing requirements. The JOBS Act extends that period to a maximum of five years, or less if during the on-ramp period a company achieves $1 billion in gross revenue, $700 million in public float, or issues more than $1 billion in non-convertible debt in the previous three years."
Poster children: the NVCA pushed hard for this provision. They had strong support both in the House and in the other chamber, with powerful Senators like Charles Schumer and Harry Reid behind it. Venture-backed entrepreneurs may think this provision of the JOBS Act is the most significant.
Hysteria: high-profile "accountability" oriented financial journalists like Andrew Ross Sorkin of the New York Times thinks the JOBS Act is terrible, mostly (I think) because of this one title of the bill (he may not like crowdfunding either, but he ignores the other titles in this rant).
This is the angel capital provision.
It is short, but even so, represents a marriage of two distinct components: (1) Rep. McCarthy's bill, as amended, to eliminate the prohibition on general solicitation in Reg D Rule 506 offerings, as long as all purchasers are accredited (angel) investors; and (2) Rep. McHenry's floor amendment to "bless" the online and offline networking that goes on among angels on angel platforms and at angel and incubator pitch events.
Irony: Rep. McHenry is better known for introducing the crowdfunding bill and getting it passed by the House; but that crowdfunding bill was gutted and replaced with a Senate version.
What's next: unlike the change in the accredited investors standard that took effect on the President's signing of Dodd-Frank, the lifting of the prohibition on general solicitation in all-angel deals is not self-executing. The Act gives the SEC 90 days to implement rules, including rules on "methods" to verify that all purchasing investors are indeed accredited. Many securities lawyers I respect are genuinely worried that this "verification" mandate could bring more complexity to a process which today is essentially self-policing.
This is the equity crowdfunding exemption.
It is the only title in the JOBS Act that bears the mark of the Senate (everything else in the final Act is in the form first passed by the House). The Senate gutted McHenry's successful, bi-partisan crowdfunding bill in order to layer much more regulation on crowdfunding - includiing registration requirements for crowdfunding platforms, and personal liability of directors and officers of crowdfunding companies for incomplete disclosure.
SRO: Crowdfunding advocates are celebratory but already busy working with one another to define best practices and organize an SRO. There is a keen awareness among the crowdfunding advocates I've talked to that the industry will be tainted, should fraudsters take root, and they want proactively to think through how to guard against that.
This is an attempt to re-vitalize Reg A.
Reg A has been a little-utilized securities exemption that caps sales of securities in a 12-month period to $5,000,000. That amount will now be increased by a factor of ten, to $50,000,000. The same White House press release referenced above describes this section of the Act as "Expanding Mini Public Offerings."
Long-time coming: Raising the cap on what can be raised under Reg A has been a perennial recommendation of the annual SEC Government-Business Forum on Small Business Capital Formation. In the Forum's report for 2011, distributed just last week, reform of Reg A was ranked as the third highest recommended reform (interestingly, the top two recommendations were arguably fulfilled by Title II of the JOBS Act).
Applets to Apples: The Morrison Foerster law firm has published a chart, on page 15 of this pdf, comparing the old Reg A against the reformed Reg A. On page 16 of the MoFo pdf, there is a discussion comparing an offering under Reg A as against financings under Reg D.
Titles V & VI
These titles increase the number of shareholders a private company may have and still remain private.
Note: this post is a work in progress. Summaries above will be tweaked as time permits.
Title VII calls on the SEC to conduct education and outreach efforts in connection with the changes to law wrought by the Act.