JOBS Act

SEC finds U.S. Crowd-Funding Offers New Capital Source

By Roslyn Akel, J.D. Candidate 2019 | Posted on

Crowdfunding has become an increasingly popular form of raising capital for small businesses and entrepreneurs.

Social Media platforms have come to play a large role in facilitating crowd funding. They also, as a platform for crowd funding, have enabled regulators to foster fair valuations in determining the value of enterprises whose shares are offered for sale.

In May 2016, the U.S. Securities and Exchange Commission (“SEC”) issued a new rule, Reg CF, to regulate crowd funding. The Jumpstart Our Business Startups (JOBS) Act, passed into law in 2012, empowered the SEC to write new rules to create a regulatory regime for crowdfunding.

These new regulations allow crowdfunding, up to $1 million, from accredited and non-accredited investors alike. Reg CF is essentially the first step in the capital ladder for early-stage companies. The intent was to create a low barrier to capital formation in order to enable businesses at their earliest stages to attain sufficient capital to get off the ground.

However, the new regulations, despite their intent to lower the barriers of capital formation, have been criticized by some as overly strict, costly, and ultimately creating barriers to capital formation. Many critics believe that the new regulations may actually be a deterrent to crowdfunding.

Mike Piwowar, acting SEC Chairman, echoed concerns that the rules were too restrictive. Piwowar stated, “[t]he commission should consider whether any further steps should be taken to improve our crowdfunding regulations, including the use of exemptive authority.”

Likewise, the Division of Economic and Risk Analysis (“DERA”), published a report that provided updates on the current state of issuers utilizing these new regulations as well as some critiques for changes to be made in the future. The DERA report affirmed the sentiment that the industry is quickly evolving and that today’s activity is probably not wholly indicative of future outcomes.

Looking forward, this is just the start for regulating crowdfunding. Changes are undoubtedly on the horizon. Congress is in the process of updating Reg CF to reflect some of the issues within the industry. Specifically, there are hopes that this update will allow special purpose vehicles which, in turn, would more easily align the interests of issuers and borrowers as well as more easily manage shareholder interests.

Despite the plethora of critiques, these new regulations are still a step in the right direction. They regulate crowd funding in a manner that will strike a balance to meet the needs of issuers, borrowers, and business in ultimately driving the success of newly formed businesses.

SEC finds U.S. Crowd-Funding Offers New Capital Source (PDF)

Roku Likely Working on Confidential IPO

By Richard Johnson, J.D. Candidate 2017 | Posted on

Roku, the streaming content device maker, is reportedly in the works with underwriters to take the company public. The Saratoga-based company, created in 2008 by former Netflix vice-president Anthony Wood, has already proved to be very successful. Roku generated $190 million in revenue last year alone and has raised over $150 million in private capital. However, many believe the time is right for an IPO for two reasons: the need to stay competitive moving forward and the success of recent consumer electronic IPOs.

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Long-term Investors Raise Concerns over JOBS Act Market Effects

By Myriam Denis, J.D. Candidate 2016 | Posted on

It has been a little over two years since Congress passed the Jumpstart Our Business Startups Act (“JOBS Act”), modifying certain securities regulations to make it easier for companies with less than $1 billion of total gross revenue – emerging growth companies (“EGCs”) – to pursue initial public offerings (“IPOs”) and gain access to capital on the market. Under Title 1, EGCs covered by the JOBS Act only have to release two years of audited financial statements (instead of the standard three), disclose the pay packages of their three top-paid executives (instead of the standard five), initiate the IPO process confidentially and are exempt from the internal controls audit required by Section 404(b) of the Sarbanes-Oxley Act.

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Hedge Funds Place More Bets on Startups

By Valerie Jon Ramos, J.D. Candidate 2015 | Posted on

As of the past two years, tech startups became increasingly more attractive in the eyes of some very wealth suitors—hedge funds. 

A recent example of this attraction is Snapchat, the popular photo-messaging startup. After refusing a $3 billion dollar buyout offer from Facebook, Snapchat received $50 million in Series C funding from Coatue Management, a hedge fund.

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IPO Alert: Chinese Internet Behemoth Alibaba plans IPO in the U.S.

By Jiarui (Tina) Guo, LLM 2014 Candidate | Posted on

After a period of breathtaking growth, China’s biggest e-commerce company, Alibaba, has recently planned its initial public offering.  Now the two major U.S. stock exchanges are ready to fight for the right to host. Though it has not been announced yet, Alibaba’s plan to raise $10 to $15 billion will likely overshadow Twitter’s highly anticipated Nov. 15 listing on the New York Stock Exchange. Relatively loose regulations in the United States, in contrast to Hong Kong’s stringent regulations, may be the fundamental factor that contributes to the biggest IPO since Facebook’s rocky debut last year.

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SEC Chair White Addresses Possibility of Disclosure Reform

By Ning Chiu of Davis, Polk, and Wardwell LLP | Posted on

It is well known that Chair White and her staff have stressed that their immediate focus is on completing the mandatory rulemaking under the Dodd-Frank and JOBS Acts, but in a sign of possible things to come after that task, Chair White spoke to the National Association of Corporate Directors (NACD) about the risk of information overload in the disclosure companies provide to investors.

To read the entire story, click here.

In Keeping Secret, Twitter Plans To Go Public

By Taylor Arabian, J.D. Candidate 2016 | Posted on

The world’s third-busiest social media website appears ready to follow in the footsteps of Facebook and LinkedIn, having recently announced its intent to file for an initial public offering.

Twitter made the announcement last week via one of its trademark “tweets,” revealing only that it had filed “confidential[ly]” with the Securities and Exchange Commission. As a company earning less than $1 billion in annual revenues, Twitter qualifies under a 2012 JOBS Act provision whereby “emerging growth companies” are allowed to make their filings in secrecy.

A confidential filing will provide some benefits to the company: in addition to being able to keep its early discussions with regulators behind closed doors, Twitter can also elect to release only two years of financial statements rather than the standard three, and the company does not have to disclose all of the executive compensation details usually required of other companies. The company will still be expected to release necessary financials three weeks before it begins its investor road show.

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START-UP NY: A Less Taxing Proposal

By Jared Mayberry, J.D. Candidate 2015 | Posted on

In an attempt to foster entrepreneurialism and job creation, New York State has passed a tax incentive program called START-UP NY.  The program alleviates tax liability for start-up companies that move to or start in one of the specified tax-free communities within the State.  There are, however, limitations on the companies that qualify for participation.  Among these limitations, restaurants, retail businesses and certain professional organizations are completely excluded from the program, and any business that can participate must not compete with a local business located outside the tax-free community. Nevertheless, the companies that are able to qualify are eligible for substantial benefits.

The program alleviates all tax liability for the participating company for a ten-year period, including corporate/business taxes, sales taxes and property taxes.  Furthermore, employees of the qualifying company will not pay income taxes during the first five years and will only have to pay taxes on income over $200,000 for individuals, over $250,000 for a head of household and over $300,000 for taxpayers filing a joint return during the second five year period.  In light of the potential for misconduct, participating companies will be subjected to significant oversight.

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Funding Portals Required to Register with the SEC

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

The SEC is beginning to consider future, customized regulation of funding portals pursuant to the JOBS Act.  Some commentators suggest that work on regulating funding portals “may illuminate potential ‘customized’ registration regimes for other firms and individuals that function in a limited broker-dealer capacity,” for example finders.  As a result, funding portals are required to register with the SEC and the FIRA, but will be subject to a simplified registration regime.  (more…)