March 12, 2012
After winning rare bipartisan approval in the House of Representatives, a package of bills aimed at kick-starting the market for initial public offerings and other financing options for start-up companies may reach a Senate vote in a week.
The Jumpstart Our Business Start-ups bill, or JOBS Act, would help young companies by exempting smaller businesses from some regulations imposed after the tech stock bust of 2000, said Kate Mitchell, chairwoman of the IPO Task Force, a group organized by the National Venture Capital Association. Former venture-backed start-ups account for 12 million U.S. private-sector jobs, according to an NVCA-commissioned study.
The measure won a 390-23 vote in the House on Thursday and has White House backing.
Venture capital lobbyists plan to deliver a letter today with 700 signatures to Senate leaders urging a quick vote, NVCA spokeswoman Emily Mendell said.
“I see this as a confluence of smart regulatory reform and a jobs agenda,” said Mitchell, a partner at Scale Venture Partners in Silicon Valley.
She said the companies need access to IPOs and other capital to grow quickly and create jobs.
The association has argued that IPOs have fallen 80% since the 1990s. It largely blames the cost of complying with the 2002 Sarbanes-Oxley securities law, which it says can cost a company $1.5 million a year, and restrictions on when investment banks can publish research reports on IPO clients after a public offering. Loosening those restrictions would increase information available to investors, the association says.
The bill would allow companies with less than $1 billion in annual sales, or that are selling less than $700 million of stock, to give investors two years of audited financial results before they go public instead of three, and have lighter regulation for up to five years after the IPO.
It would also let investment banks publish research about their clients’ IPOs deals before they happen, which is now barred under the so-called “quiet period” rules to avoid market manipulation.
Other provisions would raise from $5 million to $50 million the ceiling for shares that a private company can sell as part of a public offering before having to register with the SEC, raise the SEC registration threshold from 500 to 1,000 shareholders, and increase the number of shareholders permitted to invest in a community bank from 500 to 2,000.
The bill would help businesses about the size of Demandware, a maker of Web commerce software used by clients such as Panasonic and Callaway Golf, which is scheduled to go public this week; and Chuy’s Holdings, a Texas-based chain of 31 Mexican restaurants that is in pre-IPO registration.
Chuy’s CEO Steve Hislop said he hasn’t yet determined if the proposed rules will affect anything about his company’s deal.
The bill sparked some backlash from groups representing consumers and small investors, who said it would boost chances of immature companies going public, and also of fraud by investment bankers.
Kathleen Smith, head of an IPO-focused mutual find company and research firm, said Congress wants to be seen as supporting anything intended to create jobs.
“If it’s a job-creating headline, the politicians will all agree we need jobs,” said Smith, a principal at Renaissance Capital, which runs the IPO Plus Aftermarket mutual fund.
Banks that manage IPOs will be able to use inside access to past financial results to dominate research on new companies, with incentives to promote their firms’ banking clients, she said.
Instead of being narrowly tailored to help small business, the bill will loosen rules, some decades-old, for larger companies that did 98% of all recent IPOs, she said.
“But we’re better independent analysts when we have three years of financials, because we know more.”