SEC Opened The Door To Cheaper Capital For Small Companies
The JOBS Act has not created many jobs, but it may be about to produce a lot of stock offerings by small companies.
One of the 3-year-old law’s most important provisions took effect this month after a long rule making process at the Securities and Exchange Commission (SEC). The new Regulation A+ lets companies raise up to $50-M from ordinary investors, while incurring much less Red Tape than a traditional S-1 IPO (initial public offering)or Reg D offering.
That ability to pre-announce an offering, gauging interest before filing documents with the SEC, is a Key advantage of the new rule. A+ offerings also are exempt from state registration requirements, although firms must file audited financial statements with the SEC.
Years ago, companies could go public when they needed just a few million dollars. But, micro-cap offerings have all but disappeared as offering costs have risen and brokers’ stock-trading spreads have narrowed.
When the JOBS Act was being debated, the small-issuer provision that became Regulation A+ seemed relatively obscure. Much more attention was paid to a crowdfunding exemption, which would let companies raise money from small investors over the Internet.
Consumer groups feared that crowdfunding sites would provide easy pickings for scam artists, and the SEC has yet to finalize rules on how crowdfunding investments will work.
Meanwhile, some people think crowdfunding may play only a bit part, rather than the leading role, in meeting JOBS Act goals.
“If I had to rank the 2, it seems like Regulation A+ may be the one that has more impact on a specific group of issuers,” says Matt Kitzi, an attorney at Armstrong Teasdale and a former Missouri securities commissioner.
Those issuers are small, growing companies with a good story to tell but without enough heft to interest the giant investment banks. We will have to wait and see how the initial crop of “IPO lite” offerings turns out, but if some of them create jobs and make money for investors the SEC will deserve an A+ for effort.
Have a terrific weekend.
HeffX-LTN
Paul Ebeling
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