Transcript Jumpstart Our Business Startups Act

Jumpstart Our Business
Startups Act
Webinar Presented to the National Association of Securities Professionals
By Bryant Burgher Jaffe LLP
May 3, 2012 at 4 PM
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List of Topics
S EMERGING GROWTH COMPANIES
S PRIVATE PLACEMENT EXPANSION
S CROWDFUNDING
S REGULATION A PUBLIC OFFERING EXPANSION
S PRIVATE COMPANY SHAREHOLDER LIMIT
EXPANSION
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Introduction
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THE JUMPSTART OUR BUSINESS STARTUPS ACT (the “JOBS ACT”) is a
significant expansion of the legal tools available to entrepreneurs, small businesses,
middle market companies (including those with sales up to $1 Billion), investment
banks, broker dealers and new entities called “funding portals” to create and participate
in a dynamic, new securities market. This market should facilitate capital formation and
expand investment in early stage companies.
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The benefits of the JOBS ACT will be available to small businesses, Emerging Growth
Companies, Accredited Investors and Qualified Institutional Buyers and to other
investors (whose investment does not exceed some stated percentage of income or
personal net worth).
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The JOBS ACT includes a regulatory structure designed to facilitate capital formation,
meaningful, but not overly burdensome disclosure, the use of knowledgeable
intermediaries and SEC and other regulatory oversight.
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Congress has given the SEC from 90 to 270 days to develop rules for the JOBS ACT.
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Emerging Growth Companies
S An EMERGING GROWTH COMPANY (“EGC”) is a US
organized issuer of securities
(i) with annual sales not in excess of $1 Billion,
(ii) that has not exceeded five years after its first registered securities
offering,
S (iii) that has not issued $1Billion in non-convertible debt,
S (iv) that has not been deemed a large accelerated filer, and
S (v) that had not sold securities pursuant to a registration statement before
December 8, 2011.
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EGCs are expected to have much more relaxed accounting, disclosure and
reporting obligations.
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Emerging Growth Companies
S EGCs have an IPO “On Ramp”
S May file Registration Statement on a Confidential Basis with SEC
for comment, but must file public Registration Statement 21 days
before any roadshow.
S Research analysts may work with bankers to publish reports on an
EGC and at the same time sell securities of an EGC.
S EGCs may engage in general solicitations with Accredited
Investors and QIBs to “test the waters” on investment interest.
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Emerging Growth Companies
S EGC status and new rules on capital formation should
dramatically increase opportunities for EGCs and for broker
dealers that seek to make a market in the securities of
EGCs.
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Private Placement Expansion
General Solicitations
The JOBS ACT eliminates the Section 5 restriction on general
solicitations for certain private placements.
S The JOBS ACT amends Regulation D to allow Rule 506
Offerings to Accredited Investors to be made through
general solicitations.
S The JOBS ACT amends Rule 144A to permit offerings to
QIBS to be made through general solicitations.
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CROWDFUNDING
S The JOBS ACT creates a new exemption from the registration
requirements of the Securities Act for issuances of less than $1
Million in a twelve month period.
S The amendment permits “crowdfunding” investments by non-
Accredited Investors whose net worth or annual income serves as
the basis for a formula to cap the investor’s investment.
S Transactions must be conducted through a broker or “funding
portal” and issuers must comply with ‘watered down’ information
requirements, including periodic reporting.
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CROWDFUNDING
S The JOBS ACT “crowdfunding” mechanism is designed to create
an easier path to capital for “micro” financings. However, the
process and information requirements are designed to facilitate
disclosure and investor protection.
S Intermediaries, either broker or “funding portals”, must be the
conduit for investments by non-Accredited Investors.
S Intermediaries are tasked with policing against fraud, providing
issuer information to investors, ensuring that minimum
fundraising covenants are complied with, etc.
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CROWDFUNDING
Issuers must comply with the following requirements:
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File certain information with the SEC – a “prospectus lite” – name and
address, names of board members, description of business, capital structure
details, etc.
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Financial statements must be provided - “reviewed” by public accountants if
the financing is more than $100,000 but less than $500,000 and “audited” if
greater.
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Issuers face Section 12 liability for untrue statements of material facts or
material omissions.
Investors must hold securities for at least one year.
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REGULATION A
EXPANSION
S The JOBS ACT expands the Regulation A public offering limit to
$50,000,000 from $5,000,000.
S Regulation A allows for reduced disclosure obligations for small
public offerings.
S Only available for offerings of equity or debt convertible to equity.
S Issuers must file periodic reports with the SEC, including audited
financial statements.
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PRIVATE COMPANY
SHAREHOLDER
EXPANSION
S The JOBS ACT amends Section 12(g) of the Securities Exchange
Act to increase the threshold for compelled compliance with the
1934 Act periodic reporting obligations.
S Section 12(g) required registration once a company exceeded 750
shareholders (and $10,000,000 in assets).
S The amendment increases the threshold to compel registration
upon reaching 2,000 investors or more than 500 non-accredited
investors (and $10,000,000 in assets).
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JOBS ACT IMPACT
S SMALL AND MIDDLE MARKET ISSUERS WILL
HAVE MUCH GREATER ACCESS TO CAPITAL
FROM MICRO FINANCINGS TO IPOs of EGCs
S Crowdfunding
S Reg D – 506 and Rule 144A General Solicitations to
Accredited Investors and QIBS
S Reg A Public Offerings of up to $50 Million
S IPOs for EGCs
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JOBS ACT IMPACT
S Investment Banks and Brokers will have new tools to
participate in capital formation for small and middle market
businesses.
S Ability to make General Solicitations to Accredited Investors
re EGCs
S Ability to tear down the SOX Wall between analysts and
traders in connection with EGC sales efforts
S Brokers roles as intermediaries in crowdfundings
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JOBS ACT IMPACT
Investors will have greater access to small and middle market
companies through
S Crowdfunding and funding portals,
S relaxed general solicitation rules,
S Reg A offerings and
S EGC IPOs.
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NEW MARKET?
S The JOBS ACT has the potential to create a new, active
market for trading securities of start-ups and small and
middle market companies.
S Angel Investor Networks should proliferate.
S “Micro Markets” could emerge for trading securities.
S Banks and broker dealers may develop expertise in certain
niche markets, such as MWBE, social media, energy, real
estate(???), among others, and support transactions in such
markets.
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Q&A
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Thank You!
Please contact us if you have any questions!
S B. Seth Bryant, 212-967-1800x103,
[email protected]
S David I. Osunkwo, 212-967-1800x125,
[email protected]
S www.bryantrabbino.com
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