JOBS Act

JOBS Act Symposium: Lessons Learned from the Facebook IPO?

By Christopher Hammond, J.D. Candidate 2015 | Posted on

The panelists mostly agreed that the high-profile Facebook IPO debacle has cooled excitement for IPOs, at least within those private companies considering monetization.

Mr. Zwilling gave a brief summary.  He thinks many entrepreneurs are now saying, “I want nothing to do with this,” referring to the IPO process.  Zwilling noted, for example, Zuckerberg’s widespread criticism following the offering; he said many entrepreneurs are concerned that going public would risk losing control over important cultural aspects of his or her company.

Related to Facebook’s volatile early pricing experience, Professor Dibadj asked why there has not been more pressure (from entrepreneurs) to use a Dutch Auction format for pricing, instead of relying on the “black box” of underwriting?  Zwilling proffered that many entrepreneurs are simply naïve to the pricing system, and they don’t have much insight as to the underwriting process.  The entrepreneurs, by and large, think, “We don’t know how it works and we don’t have any control.”

JOBS Act Symposium: Which of the Title 1 provisions has the biggest potential impact to incentivize IPO offerings and will it work?

By Will Schildknecht, J.D. Candidate 2015 | Posted on

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.

The panelists were asked to predict which part of Title 1 of the JOBS Act will have the biggest impact on IPO offerings?

Reza Dibadj discussed the way in which the JOBS Act allows emerging growth companies to escape the onerous accounting and reporting required by the Sarbanes-Oxley legislation. Furthermore, companies are taking advantage of the opportunity to withhold executive compensation information.

Martin Zwilling emphasized that any changes to the law which decrease the number of regulatory hoops that have to be jumped through is beneficial to the IPO process. Some companies have had to dramatically increase their personnel and time resources to comply with Sarbanes-Oxley.

Robert Bartlett looked to the statistics about the parts of the JOBS Act actually being employed to understand which parts of the act are most effective. A Skadden, Arps study concluded that emerging growth companies are taking advantage of withholding executive compensation but are  still revealing three or more years of financial records even though the legislation permits them to offer with only two years of reports. Seventy percent of emerging growth companies are also taking advantage of the ability to submit their prospective IPO offer to the SEC privately.

Stay with The Network for further updates from the Berkeley Business Law Journal JOBS Act Symposium.

JOBS Act Symposium: Do Entrepreneurs Prefer IPOs or M&A Exit Strategies?

By Christopher Hammond, J.D. Candidate 2015 | Posted on

Is the IPO market depressed because M&A is becoming the preferred exit strategy for entrepreneurs?

Martin Zwilling opened by commenting that entrepreneurs today prefer M&A, because private acquisition is not as burdensome or costly as preparing for an IPO.  In addition, many startups have recently seen “huge premiums” paid via M&A, so their bottom-line return might approximate that generated by an IPO.  Mr. Zwilling also noted that many companies, including Intel and IBM, are beginning to look to buy their technology instead of creating it on their own—essentially outsourcing some of their product development.

Entrepreneurs prefer M&A’s speed, which allows them to ‘cash out’ and move on to creating a new company—what entrepreneurs love to do in the first place.

Professor Bartlett agreed with Mr. Zwilling, but argued that the dynamic has been in place for a long time.  Still, he acknowledged that M&A is preferred for many startups because entrepreneurs and VCs can monetize their investments immediately, whereas the IPO process locks up capital for six months and subject them to considerable market risk.  Even once the company has gone public, both are often prevented from quickly selling their equities because they’re considered ‘insiders.’  Prof. Bartlett concluded, “The thumb has always been on the scale, in my assessment, on the side of M&A” because VCs simply have more control over the process.

Professor Dibadj suggested that entrepreneurs might have become a bit more sensitive to the substantial underwriting costs associated with an IPO, which pushes them towards merger instead.  Marin Zwilling agreed—adding that VCs prefer business models with M&A exit strategies than IPOs.

JOBS Act Symposium: What IPO problems did the JOBS Act set out to solve?

By Will Schildknecht, J.D. Candidate 2015 | Posted on

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.

The panelists were asked to discuss the problems with IPOs antecedent to the passage of the JOBS Act and the problems that the Act set out to solve.

Reza Dibadj provided statistical evidence to support the fact that IPOs have significantly declined in the 2000’s. There was a significant fear on the part of policy makers that IPOs were declining or going overseas costing jobs here. But what wasn’t clear was the causation of the IPO decline. Statistics do not confidently show the cause of the demise of the IPO market and whether entrepreneurs are just preferring mergers and acquisitions instead.

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JOBS Act Symposium: The IPO On-Ramp

By Christopher Hammond, J.D. Candidate 2015 | Posted on

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.

Liveblogging from the 2013 BCLBE and BBLJ Symposium

By Christopher Hammond, J.D. Candidate 2015 | Posted on

The Berkeley Business Law Journal will be covering today’s symposium, The JOBS Act: Initiatives and Challenges of the New Legislation, hosted with the Berkeley Center for Law, Business and the Economy.

The event is taking place at Boalt Hall from 8:45a – 2:00p and will include two panel sessions:  First up, “The IPO On-Ramp” featuring discussion and insight from Robert Bartlett, Reza Dibadj, and Martin Zwilling.  Our second panel, beginning at 11:00a, will critique the “Crowdfunding exception” for IPOs.  Earlier panelists will be joined by Eric Brooks and Mary Dent.

Visit The Network often to follow the event.  Our writers will be frequently posting throughout the morning.

BCLBE and BBLJ 2013 Symposium — The JOBS ACT: Initiatives and Challenges of the New Legislation

By Will Schildknecht, J.D. Candidate 2015 | Posted on

A new frontier in securities law, but how will people use it?

The Jumpstart Our Business Startups Act (JOBS Act) offers new avenues for investors and small companies to participate in the market.  Leaders in business and law will be gathering at the University of California, Berkeley, School of Law on March 15, 2013, to discuss the Act’s opportunities and risks.  The Berkeley Business Law Journal and Berkeley Center for Law, Business, and the Economy are proud to present their 2013 symposium—The JOBS Act: Initiatives and Challenges of the New Legislation from 8:45a – 2:00p at Boalt Hall.  Registration is required.  The symposium will bring together prominent speakers from the fields of law, securities regulation, and venture capitalism to discuss two critical areas of the Act.

The first panel session will explore “The IPO ON-Ramp.”  In response to the decrease in companies applying for initial public offerings, the JOBS Act incentivizes companies to make an offering and introduces a gradual five-year plan to scale up to full public status.  Panelists including Robert Bartlett and Reza Dibadj from UC Berkeley, School of Law, as well as Martin Zwilling from Startup Professionals, will discuss the reason for the decline in IPOs and whether the steps taken in the JOBS Act will arrest and reverse this decline.  The IPO ON-Ramp panel runs from 9:00 – 10:45a.  Further readings about the IPO panel discussion are available on the BCLBE website.

The second panel will discuss the widely-publicized “Crowdfunding” public offering exception.  The panelists will demystify the types of small money investments that are permitted under the crowdfunding exception.  Having discussed the newly permitted activities, the panel will engage in a cost-benefit discussion of the opportunity for new investment avenues weighed against the potential for fraud inherent in this up-tempo investment frontier.  Panelists from the first session will be joined by Eric Brooks from the SEC and Mary Dent from Silicon Valley Bank.  The “Crowdfunding” panel will present their thoughts from 11:00a – 12:45p.  More information on the Crowdfunding panel discussion is available on BCLBE’s website.

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Firm Advice: Your Weekly Update

By Joseph Santiesteban, J.D. Candidate 2014 | Posted on

The FTC recently revised the Hart-Scott-Rodino thresholds effective for transactions closing on or after February 14, 2013. Transactions that exceed the thresholds must be reported to the FTC and DOJ for antitrust review before closing. The FTC annually updates the thresholds when there are changes to gross national product. In a recent client alert, Wilson Sonsini summarizes the updated thresholds and compares them to last year’s amounts.

FINRA recently invited those intending to become crowdfunding portals to voluntarily share information about their business.  FINRA stated that submissions will be free and all information will be kept confidential. FINRA plans to use the information to develop rules for the portals. In a recent client alert, Davis Polk summarizes what information FINRA is seeking and how it may play into the larger scheme of crowdfunding rule development.

The SEC recently approved new compensation committee requirements for companies listed on the NYSE and Nasdaq.  The requirements are designed to enhance compensation committee independence and specify compensation committee authority and responsibility. Companies are required to comply by the earlier of their first board meeting following January 15, 2014 or October 31, 2014.  In a recent client alert, Skadden explains the new requirements and which companies are subject to them.

 

Funding Portals Caught In Transition

By Ian Peck, LL.M. Candidate, 2013 | Posted on

One of the most heavily covered and debated-about sections of the JOBS Act is the crowdfunding exemption.  The Act creates a new exemption under Section 4 of the Securities Act of 1933 through which certain crowdfunded securities issuances need not be fully registered with the Securities and Exchange Commission.  Much has been written about the potential benefits that small issuers (and the American economy) will reap as well as about concerns that fraudulent internet securities offerings will reach a wide range of retail investors.  Part of the success or failure of the exemption, however, depends on the strength of crowdfunding intermediaries known as “funding portals,” not just the underlying issuers.

New Section 3(a) of the Securities Exchange Act of 1934 defines the term “funding portal” as a “person acting as an intermediary in a transaction involving the offer or sale of securities for the account of others, solely pursuant to [the crowdfunding exemption].”  Importantly, the definition includes a list of five activities that a funding portal is prohibited from engaging in.  The first one is “offer[ing] investment advice or recommendations.”

This prohibition is ostensibly attempting to distinguish, on the one hand, investment advisers and broker-dealers from funding portals on the other.  The tension with this practical attempt at fencing off various intermediaries appears when you look at crowdfunding platforms not engaged in the offer or sale of securities.  Kickstarter, one of the major crowdfunding websites, helps potential lenders link up with, among others, video game makers, authors, and fashion designers.   One of the creative ways in which Kickstarter (and others) helps make these connections is to highlight certain projects; any visitor to the website can browse “Staff Picks” where they can find out, for example, how to buy into a San Francisco retail store’s plan to construct a “parklet” outside of its shop.

Would a funding portal that uses the same crowdfunding technology of its non-securities counterparts, be allowed to provide “staff picks” or “recommended companies” on its website?  The success or failure of the crowdfunding model will depend heavily on funding portals being able to connect investors with companies who could use their capital.  Those connections will be made far stronger if funding portals attain clear guidance on what is and is not “investment advice or recommendations.”  The Securities and Exchange Commission should provide greater clarity on this issue through rulemaking so that funding portals know in advance (to the extent possible) how best to manage their communications with investors.  While crowdfunding has been a darling in the world of e-commerce, the platform must fit itself into the constraints of US securities law.  While the recommendation issue is but one factor that will play into the success of the crowdfunding exemption, it will be an important one to follow as crowdfunding makes the transition to securities.

Are Emerging Growth Companies Using the JOBS Act’s Reduced IPO Filing Requirements?

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

President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”) into law on April 5, 2012.  We presented an update on the regulatory implementation of the act here and here, as well as a discussion of the Act’s internal contradictions here.  While much of the Act left to the SEC the responsibility of designing regulations to implement the Act, it specifically set out provisions designed to ease IPO filing requirements for “emerging growth companies.” This week we have an update on how many companies are utilizing these already implemented provisions.

The JOBS Act defines an “emerging growth company” as a business with less than $1 billion dollars in revenue during the previous fiscal year. The JOBS Act has seven provisions designed to make IPO filing easier for an emerging growth company. These include the requirement to present only two years (rather than five years) of financial statements and an exemption from complying with new or revised accounting standards. The law also allows emerging growth companies to provide reduced disclosure about its executive compensation system, and provides an exemption from certain auditing requirements.

Last month, Morningstar published a study on the effects of this legislation on companies that have filed publicly since the Act’s enactment.  According to Morningstar, 56 companies have publicly filed since the President signed the legislation into law.  Thirty-Eight of those companies have qualified as “emerging growth companies,” and all but one of those qualifying companies have taken advantage of at least one provision of the Act.

Companies that are filing have adopted most of the provisions, with majority of companies taking advantage of or plan to take advantage of five of the seven provisions.  Two of the provisions, however, have not been as widely utilized.  Only fifty percent of the qualifying companies provided less than five years of financial data, and only six of the qualifying companies opted out of the new or revised financial accounting standards.

Berkeley Law Adjunct Professor Donna Petkanics, a Partner at Wilson, Sonsini, Goodrich & Rosati in Silicon Valley, believes these results are driven by a combination of factors.  She believes that many of the companies were preparing to go public before the Act was signed. Thus, they likely were prepared to provide five years of financial data and comply with previous accounting standard.

Petkanics also thinks use will vary by industry. For instance, in industries where it “is important for the company to show strong growth for investors, they will show the full five years required by the previous regulation,” says Petkanics.  “However, if the company is in biotech or cleantech, which are primarily R&D companies, the full five years will be less important to investors.” Thus, in these industries, companies more likely will take advantage of the reduced filing requirements.

Underwriter preference also could be driving these results, says Petkanics. “The company underwriting the IPO may prefer the old standard and may suggest the old standard to their clients,” she says.  We will have to wait for a larger sample size, but Professor Petkanics believes that what happens in the next twelve months will be telling.