This morning’s first panel features Robert Bartlett, Reza Dibadj, and Martin Zwilling, discussing the JOBS Act’s Title I provisions for initial public offerings.
Professor Bartlett began with the political economy surrounding the legislation. He noted the interaction between initial public offerings (“IPO”) and a well-functioning venture capital (“VC”) ecosystem. Without accessible IPO requirements or other sources of secondary financing, many VCs may be unable to recover their invested capital or exit the market. But when companies can sell equity to the public, VCs can recycle the capital—the VC ecosystem can then support more growing companies and, in turn, job creation.
Title I of the JOBS Act emerged out of an industry task force’s white paper, entitled “Rebuilding the IPO On-Ramp.” It recommended an on-ramp for emerging growth companies (“EGCs”) using existing principles of scaled regulation. The central principle was to lessen the regulatory and disclosure requirements for new companies – encouraging them to go public – by creating a new EGC category. The transitional category that emerged applied generally to companies with less than $1 billion in annual revenue, for as long as five years.
Congress acted quickly, adopting most of the white paper’s recommendations.
EGCs are subjected to less cumbersome regulation while on the ‘on-ramp.’ For example, they need only include two years’ of audited financials in their regulatory statements (instead of three to five years). Also, Title I allows EGCs and underwriters to communicate with qualified institutional buyers prior to filing regulatory statements; and companies considering an IPO can file a confidential registration statement, to protect sensitive information if they decide not to go public at that time.