Transcript No Slide Title

David Lynn, Morrison & Foerster LLP
Tymour Okasha, Bank of America Merrill Lynch
Anna Pinedo, Morrison & Foerster LLP
March 8, 2012
© 2012 Morrison & Foerster LLP | All Rights Reserved | mofo.com
IFLR Webcast:
Private Offering Reform
Agenda
 Overview of concerns raised relating to capital formation
 Changes to the IPO market
IPO Task Force Report
Legislation
 Staying private and the Section 12(g) threshold
 Private placement related developments
Accredited investor definition
Bad actor proposal
FINRA
Regulation A
General solicitation
Crowdfunding
This is MoFo.
2
Overview
This is MoFo.
3
Post Dodd-Frank Developments
 There has been heightened focus placed on easing the regulatory
burden for smaller or emerging companies
 Commentators have noted that there have been a variety of changes
that have occurred over the last decade or so that have had a chilling
effect on capital raising efforts by smaller or emerging companies,
including:
SOX
Market structure issues
Changes affecting research analysts
Litigation affecting IPO companies
Regulatory burdens relative to capital
This is MoFo.
4
Decline of the IPO Market in the U.S.
 Chairman Issa’s March 2011 Letter to Chairman Schapiro cites
statistics regarding the number of IPOs in the United States and
posits that the dearth of IPOs may be tied to
Complexity of SEC regulations
SOX and DFA
Litigation
Overly restrictive rules regarding offering communications
This is MoFo.
5
IPO Market Review
6
2011 Equity & Equity-Linked New Issuance Summary
Key Takeaways
Not unexpectedly for such a volatile
year, 2011 equity and equity-linked
issuance volume was down ~18% vs.
2010



2011 had been on pace to exceed
2010 by 20% in the first half,
only to see deal volumes wither
in 2H as volatility spiked
However, many sectors still saw
healthy issuance as the FIG,
Industrials, and Energy sectors
accounted for $62bn+ in lost volume
on their own
Technology has been the #5 issuing
sector by proceeds for four
consecutive years, and the #3 issuing
sector by deal count for the last two
$350
$293
$300
$267
Volume ($bn)

Total Equity & Equity-Linked Issuance, Last 5 Years
$264
$251
$250
$207
$200
$150
$100
# of
Deals:
$80
$71
$50
789
366
693
682
584
203
191
$23
80
2007
2008
2009
2010
2011
Q1'11
Q2'11
Q3'11
$0
$34
110
Q4'11
Industry Breakdown, Last 5 Years
By Proceeds
By # of Deals
Year
#1
#2
#3
#4
#5
Year
#1
#2
#3
2007
Industrials
FIG
Tech
Energy
Real Estate
2007
Industrials
Tech
Energy
2008
FIG
Industrials
Energy
Real Estate
Tech
2008
FIG
Energy
2009
FIG
Industrials Real Estate
Energy
Tech
2009
Industrials
FIG
Energy
Real Estate
Tech
2010
Energy
FIG
Tech
2010
Energy
Industrials
Tech
Real Estate
FIG
2011
FIG
Energy
Tech
2011
Energy
Real Estate
Tech
Industrials
FIG
Industrials Real Estate
Real Estate Industrials
____________________
Source: Dealogic as of December 31, 2011.
Note: Excludes all deals less than $50mm (pre-greenshoe). IPOs exclude SPACs & CLEFs, add-ons exclude SPACs & rights offerings, & converts include all US marketed deals.
7
#4
#5
Healthcare Real Estate
Industrials Real Estate
Tech
2011 IPO Market Issuance Summary
Key Takeaways
The 2011 IPO market proved highly
unpredictable




Aug.-Oct.: near-complete market
closure
$43

Technology also took the top spot
on a $ proceeds basis, with
$10.5bn of issuance
Despite 2011 seeing 15% fewer
IPOs than the previous year,
proceeds raised rose 33% from
$7.9bn to $10.5bn as the average
deal size increased from $165mm
to $256mm
$40
$27
100
$27
192
$15
141
58
27
$14
115
50
IPO issuance finished at 115 deals for
$40bn, down 18% and 7% respectively
as average deal size picked up from
$307mm to $350mm

$40
150
Nov. and Dec.: fatigued buyside
and fickle market
For the 3rd year in a row, technology
led issuance activity with 41 deals,
making it by far the largest issuing
sector ahead of Energy at 25 deals and
Industrials at 12 deals
$60
$52
25
48
Q1'11
$20
$4
17
25
Q2'11
Q3'11
Q4'11
$294
$224
$296
0
2007
2008
2009
2010
2011
# of IPOs
Avg. Deal
Val. ($mm)
$273
$989
$464
$307
$7
$0
$bn of IPOs
$350
$600
Industry Breakdown, Last 5 Years
By Proceeds
Year
#1
#2
#3
2007
FIG
Tech
Energy
2008
FIG
Energy
Industrials
2009
FIG
Tech
2010
Industrials
Tech
2011
Tech
Energy
By # of Deals
#4
#5
Year
#1
#2
#3
#4
#5
2007
Tech
Healthcare
Energy
Industrials
FIG
Real Estate
2008
Energy
Industrials
Tech
Healthcare
FIG
Real Estate Healthcare Consumer
2009
Tech
Real Estate
2010
Tech
Industrials
Energy
FIG
Healthcare
FIG
2011
Tech
Energy
Industrials
FIG
Healthcare
Industrials Healthcare
Tech
Energy
FIG
Healthcare Consumer
____________________
Source: Dealogic as of December 31, 2011.
Note: Excludes SPACs, CLEFs & deals less than $50mm (pre-greenshoe).
8
Real Estate Industrials Healthcare Consumer
Volume ($bn)

First half/July: relatively
“normal”
200
# of IPOs

IPO Issuance, Last 5 Years
2011 IPO Market Performance Summary
Key Takeaways

For the year, the average IPO priced
+0.6% vs. its filed midpoint and traded
up 11.0% on its first day



80%

Recent issuers have had to adjust
valuation expectations given
investor sensitivity to deal
performance and valuation
2%
1%
0%)
70%
0%
0%)
69%
(5%)
(5%)
60%
59%
60%
56%
50%
(8%)
(10%)
(9%)
(15%)
2007 2008 2009 2010 2011
Week ended 12/16 marked the
busiest week for IPOs in 2011
Growth is the differentiating
theme between IPOs that “work”
and those that don’t
2%
76%
70%
Many IPOs, including several
high-profile Tech companies, saw
their opening price as the high in
their share price
5%
5%
78%
74%
Q1'11Q2'11Q3'11Q4'11
2007 2008 2009 2010 2011
Q1'11Q2'11Q3'11Q4'11
IPO Trading Performance, Last 5 Years
While the IPO market is open, pricing
has been bifurcated

Average File / Offer
10%
82%
For technology, those stats
become +9.6% and +22.3%
We exit 2011 with some momentum in
the market and hope for 2012

% IPOs Priced In / Above the Range
90%
Investor buy-and-hold conviction has
shown signs of fatigue


IPO Pricing Performance, Last 5 Years
Average Offer / 1 Day
Average Offer / Current
20%
20%
18%
15%
15%
15%
15%
13%
10%
10%
11% 11%
10%
0%)
9%
(1%)
8%
(4%)
6%
5%
(10%)
3%
(7%)
(10%)
(15%)(15%)
0%)
____________________
Source: Dealogic as of December 31, 2011.
Note: Excludes SPACs, CLEFs & deals less than $50mm (pre-greenshoe).
(20%)
2007 2008 2009 2010 2011
Q1'11Q2'11Q3'11Q4'11
9
2007 2008 2009 2010 2011
Q1'11Q2'11Q3'11Q4'11
Impact of Volatility on 2011 IPOs




August saw the VIX spike to 40+
and only 2 out of 11 anticipated
deals price
As the VIX fell to 30 and below,
IPO activity resumed a more
“normal” pace of 10-15/month
Interestingly, IPO pricing suffered far
more than performance in this year’s
highly volatile markets




While only 2 deals priced at a
time when the VIX exceeded 40,
those deals averaged the best
aftermarket performance (+15%)
The 17 deals priced in a 30-40 VIX
window also saw modest, yet,
respectable trading gains (+5%)
However, these 19 offerings
priced roughly 10% below the
filed midpoint on average
25
25
50
50
20
20
40
40
15
15
10
10
17
17
21
30
21
13
13
13
13
10
10
10 20
10
10
10
5 8
8
7
7
4
0
2
4
0
2
0
0
10
Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec
5
Avg. Monthly VIX
24.3
17.4
20.7
16.2
16.9
19.2
19.2
35.0
36.5
32.8
31.8
25.1
Avg. File/Offer
0.6%
(7.2%)
10.4%
0.5%
(1.4%)
12.2%
9.6%
(11.9%)
NA
(21.0%)
(3.9%)
(1.9%)
Avg. Offer/1 Day
8.4%
9.6%
29.6%
9.3%
9.9%
6.3%
23.0%
0.9%
NA
18.0%
8.3%
1.4%
IPO Performance vs. VIX Index
# IPOs
Deal Value
% IPOs Priced
Average
($bn)
In / Above Range
File / Offer
1 Day
15
$24.7
74.0%
2.7%
12.2%
8.5%
(14.9%)
79.5%
23
7
$10.9
65.2%
1.9%
10.8%
8.4%
7.8%
65.2%
30-40
17
6
$4.0
64.7%
(6.9%)
5.7%
4.9%
1.6%
64.7%
>40
2
5
$0.7
0.0%
(23.8%)
11.8%
14.9%
18.7%
100.0%
VIX
Priced
<20
73
20-30
Withdrawn (1)
Offer /
% Greenshoes
1 Month Current
Exercised
Is There a “New Normal” For Acceptable Levels of Volatility?
Investors demanded substantial
discounts to compensate for
increased market risk
2001 To Date Pricing vs. VIX Index
2008 To Date Pricing vs. VIX Index
1%
8%
1%
5%
27%
40%
67%
____________________
Source: Dealogic as of December 31, 2011.
Excludes SPACs, CLEFs & IPOs less than $50mm (pre-greenshoe).
Note: (1) Withdrawn offerings exclude IPOs pulled pre-launch or due to M&A.
<20
20-30
30-40
51%
>40
10
<20
20-30
30-40
>40
VIX
Volatility, the single biggest hindrance
to a healthy new issue market, has
returned to favorable levels (<25)
IPO Issuance vs. VIX, By Month
# of IPOs
Key Takeaways
30
20
10
VCs and Sponsors Remained Active in 2011 Despite Volatility
Key Takeaways

2011 saw strong VC / sponsor
volumes despite 2 months where the
window was essentially closed



Private-equity backed offerings
fell more substantially as the
market became less willing to
participate in slower-growth,
higher-levered transactions

VC IPO sizes nearly doubled to
$220mm as large internet
offerings drove proceeds
(LinkedIn, Groupon, Zynga)
Large mature sponsor offerings
early in 2011 like HCA, Kinder
Morgan, and Nielsen drove up
volumes similarly before
volatility slowed such issuance
While technology IPOs dominated VC
activity as usual, the sector saw a
particularly slow issuance year from
private equity-backed issuers

Only 3 PE-backed Tech issuers
priced IPOs in 2011 (Bankrate,
Freescale Semi, and InterXion) for
$1.5bn in total proceeds
____________________
Source: Dealogic as of December 31, 2011.
Note: Excludes SPACs, CLEFs & deals less than $50mm (pre-greenshoe).
VC-Backed
Total ($bn) Avg. ($mm)
Year
#
2007
48
7
148
2008
7
1
2009
11
2
2010
58
2011
Average
While deal count slipped from
2010, VC deal counts were still
near the strong 2007 level
Yet for both constituencies, proceeds
raised were up significantly as deal
sizes saw a large increase in 2011


Fewer, but Larger, Deals Driving Sponsor Issuance
PE-Backed
Total ($bn) Avg. ($mm)
#
#
Other
Total ($bn) Avg. ($mm)
64
16
255
80
29
361
128
5
2
421
15
24
1581
154
24
9
359
23
17
723
7
118
45
10
232
38
26
683
46
10
219
28
20
710
41
10
253
34
5
153
33
11
395
39
21
720
Sponsor IPO Industry Breakdown
Rank
Industry
2007
# Total ($bn)
%
Industry
2008
# Total ($bn)
%
VC-Backed IPO Issuance
2009
Industry # Total ($bn)
%
#1
Technology 27
4
49%
Technology 3
1
59%
#2
Healthcare 15
2
25%
Healthcare 3
0
25%
Industrials
#3
Industrials
2
1
20%
Energy
1
0
15%
#4
Energy
2
0
3%
--
--
--
--
--
#5
Consumer
1
0
2%
--
--
--
--
--
Total
47
7
7
1
Rank
2007
# Total ($bn)
#1
Industry
Technology 19
%
Industry
4
25%
Industrials
2008
# Total ($bn)
%
--
--
#4
Industrials
8
3
15%
--
--
--
--
#5
Healthcare 12
2
12%
--
--
--
--
5
2
Energy
0
21%
Healthcare 12
1
17%
Healthcare 6
1
6%
0
9%
Energy
4
0
6%
Energy
3
1
5%
--
--
--
Consumer
3
0
4%
Consumer
1
0
2%
--
--
--
Real Estate 1
0
2%
--
--
--
--
11
2
46
10
56
PE-Backed IPO Issuance
2009
Industry # Total ($bn)
%
Industry
7
2010
# Total ($bn)
%
Industrials 11
31%
--
#2
2
Healthcare 2
Real Estate 2
1
--
19
87%
Technology 2
16%
FIG
9
29%
17%
#1
Technology 36
3
3
14
2007
# Total ($bn)
67%
Technology 10
3
Industry
5
28%
7
2008
# Total ($bn)
%
Industry
12
42%
FIG
2
%
Technology 36
2
7
2011
# Total ($bn)
70%
Healthcare 7
Energy
Industry
1
69%
Consumer
Rank
%
1
#3
53
2010
# Total ($bn)
3
#2
Total
Technology 7
Industry
Industry
2011
# Total ($bn)
Healthcare 3
%
5
25%
1
14%
2
18%
Energy
6
5
25%
3
1
13%
Energy
5
2
17%
Consumer
6
3
14%
Technology 4
1
13%
FIG
5
2
16% Prof Services 1
2
10%
1
1
11%
Prof Services 6
1
8%
2
2
9%
17
7
18
16
Consumer
Energy
Other IPO Issuance
2009
# Total ($bn)
%
Industry
20
83%
FIG
37
Industry
Industrials
9
Energy
2
8
50%
9
2010
# Total ($bn)
%
FIG
2011
# Total ($bn)
%
Industry
20
78%
Energy
7
2
7%
Real Estate 9
2
7%
FIG
9
16
38%
2
19%
2
15%
20
6
19%
Energy
7
3
11%
Technology 5
4
21%
#3
Industrials 15
4
12%
Industrials
3
1
3%
Real Estate 9
3
17%
#4
Technology 11
3
12%
Real Estate 2
0
2%
Consumer
2
1
8%
FIG
8
1
5%
Industrials
6
1
13%
#5
Real Estate 7
3
10%
Technology 1
0
0%
Industrials
5
1
5%
Consumer
3
1
2%
Consumer
2
1
12%
23
17
36
26
39
10
Total
72
27
15
11
24
Real Estate 6
%
4
Sponsor-Backed IPOs Outperformed in 2011
Yearly Performance Data
Key Takeaways



2011 saw a solid improvement in
pricing trends vs. 2010, although less
convincing improvement in trading
“Growth IPOs” saw strong pricings
throughout the year, though “mature”
companies outperformed post offering
VC IPOs had the strongest pricing
outcomes in 2011 (6% above midpoint
vs. +1% for PE-backed and -6% for
Other) and the highest 1-day trading
gains (+22% vs. +9% for PE-backed
and 0% for Other)


However, they also had the
lowest trading performance for
the full year (-14% vs. +7% and
-9%) as many high-growth IPOs
experienced trading pressure in
2H as investors took profits
A key takeaway in 2011 is investors’
receptivity to secondary shares


Deals with >30% secondary
shares outperformed on both
pricing and trading metrics for
VCs and sponsors alike
Average pricing vs. midpoint was
+12% for >30% secondary and
+3% for <30% for VCs; +6% and
-3% for sponsors
Average offer/1 day was +28%
for >30% secondary and +20% for
<30% for VCs; +15% and +5% for
sponsors
____________________

Sponsor IPO Pricing Performance
% IPOs Priced In / Above the Range
100%
20%
91%
88%
87%
78%
80%
72%
Average File / Offer
60% 62%
60%
60%
54%
10%
59%
58%
40%
40%
15%
15%
76% 75%
71%
5%
7%
6%
3%
1%
0%
(0%)
(1%)
(5%)
20%
(10%)
(0%)
(8%)
(7%)
(8%)(8%)(7%)
2009
2010
(6%)
(10%)
(11%)
(15%)
2007
2008
2009
VC-Backed
2010
PE-Backed
2011
2007
2008
Other
VC-Backed
PE-Backed
2011
Other
Sponsor IPO Trading Performance
Average Offer / 1 Day
25%
19%
17%
25%
(0%)
9%
9%
8%
7%
(0%)
(25%)
7%
5%
5%
(25%)
(50%)
0%
2%
4%
(50%)
2008
2009
VC-Backed
2010
PE-Backed
Source: Dealogic as of December 31, 2011. Note: Excludes SPACs, CLEFs & deals less than $50mm (pre-greenshoe).
12
2011
Other
32%
24%
6%
0%)
(2%)
1%
4%
(17%)
(3%)
(16%)
2007
0%)
(5%)
2007
32%
24%
85%
4%
2%
(0%)
85%
18%
15%
10%
89%
100%
50%
25%
22%
21%
20%
Average Offer / Current
100%
50%
(37%)
2008
(36%)
VC-Backed
2007
2008
VC-Backed
7%
(10%) (12%)0%
(10%)
(14%)
(20%)
(9%) (12%)
(14%)
(9%)
(19%)
2009
2010
2011
PE-Backed
2009
2010
Other
2011
PE-Backed
Other
Sponsor-Backed IPOs Outperformed in 2011
Quarterly Performance Data
Key Takeaways

Q4 pricing was more challenging
despite an improved overall market, as
investors adopted a more conservative
stance towards year-end



All IPOs, regardless of financial
sponsorship, failed to achieve
midpoint pricings as investors
demanded greater discounts to
compensate for higher market
risk
The “IPO discount" saw a
widening from the typical 15%20% in normal markets to 30%40% for many issuers
Sponsor IPO Pricing Performance
% IPOs Priced In / Above the Range
100%
Larger “IPO discounts” provided
a margin of error for deals to
move higher post-IPO, even in
the midst of frequent newsflow
headwinds
15%
90% 100%
80%
80% 83% 83%
76%
60%
60%
65%
11%
10%
5%
60% 60%
50%
8%
5% 6%
6%
0%
(0%)
(1%)
38%
40%
(5%)
20%
(4%)
(5%)
(5%)
(8%)
(10%)
(10%)
(15%)
(0%)
Q1’11
Q1’11
Q1’11
2011
Q2’11
Q2’11
Q2’11
2011
VC-Backed
While pricing saw some volatility
throughout the year, performance
remained fairly stable as valuation
expectations were ratcheted lower

Average File / Offer
Q3’11
Q3’11
Q3’11
2011
PE-Backed
Q1’11
Q1’11
2007
Q1’11
Q4’11
Q4’11
Q4’11
2011
Q2’11
Q2’11
2008
Q2’11
VC-Backed
Other
Q3’11
Q3’11
2009
Q3’11
PE-Backed
Q4’11
Q4’11
2010
Q4’11
Other
Sponsor IPO Trading Performance
Average Offer / 1 Day
Average Offer / Current
40%
25%
18%
34%
30%
28%
6%
1% 1%
(0%)
21%
20%
20%
11%
10%
0%
(4%)
16%
(10%)
10%
4%
4%
4%
(25%)
4%
(22%)
(28%)
1%
(28%)
(0%)
(2%)
(2%)
(50%)
(10%)
Q1’11
Q1’11
Q1’11
2007
Q2’11
Q2’11
Q2’11
2008
VC-Backed
Q3’11
Q3’11
Q3’11
2009
PE-Backed
____________________
Source: Dealogic as of December 31, 2011.
Note: Excludes SPACs, CLEFs & deals less than $50mm (pre-greenshoe).
13
Q4’11
Q4’11
Q4’11
2010
Other
Q1’11
Q1’11
Q1’11
2007
Q2’11
Q2’11
Q2’11
2008
VC-Backed
Q3’11
Q3’11
Q3’11
2009
PE-Backed
Q4’11
Q4’11
Q4’11
2010
Other
Tech Was In the IPO Spotlight All Year
Key Takeaways
Tech Volume Acceleration Continued in ‘11
Tech IPO volumes were healthy relative to the last decade

Tech IPOs were also consistently the most well-received by investors,
pricing 10% above the marketed midpoints and trading up 17% in their
first month on average

Tech pricing and performance benefitted from the strong investor bid for
growth, highlighted by several marquee internet and software IPOs
(LinkedIn, Zillow, Angie’s List, JIVE Software, etc.)


Of the top 20 performing IPOs in 2011, 16 were from the Tech sector
(on both a file/offer and offer/1 day basis)
$32.5
$35
$15
$11.0
# of Tech IPOs

150
75
$10
$7.9
$7.4
148
$5.8
57
25
48
Despite initial euphoria for many of these deals, aftermarket trading
often disappointed as investors became less willing to hold IPOs
12
11
38
$1.6
31
23
16
6
0
20%
16.9
15.5
14.5
9.2
17.2
40%
9.6
10.0
10%
16.4
7.3
3.3
3.0
0.6
2.7
0.0%
(1.7)
(2.2)
(7.4)(8.0)
(9.2)
(13.5)
(20%)
Tech
C&R
FIG
Real
Estate
Trans
Industrial
Health
care
(13.8)
Prof
Servic
es
(15.6)
Energy
1.7
0.0%
(1.2)
(10%)
(3.5)
(3.3)
(4.7)
(1.7)
(3.4)
(20%)
32.7
28.8
30%
20%
15.6 15.6
14.2
13.3
17.2
14.9
11.5
5.0
10%
0.0%
(1.8)
(10%)
(9.9)
# Per
Sector:
$bn of Tech IPOs
High-Growth Internet is Leading the Way (2)
% Change, 2011
% Change, 2011
10.6
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Tech IPOs Are Outperforming (1)
16.5
$5
41
$1.2
10
# of Tech IPOs
20%
$5.8
$5.6
$2.2
Capital-intensive businesses in the semiconductor and Cleantech space
almost universally struggled vs. their technology peers
$10.5
$9.5
50
Volume of Tech IPOs ($bn)

Consumer
Tech
Real
Estate
Energy
FIG
Industrials
(18.1)
Healthcare
9
41
7
25
11
12
9
(20%)
# Per
Sector:
Internet
Services
Softw are
Comms.
Cleantech
18
3
8
6
3
Average Midpoint/Offer
Average Midpoint/Offer
Average Offer/1 Month
____________________
Source: Dealogic as of December 31, 2011. Excludes SPACs, CLEFs & IPOs less than $50mm (pre-greenshoe).
Note: (1) Excludes Nielsen Holdings, which was the only professional services IPO to price in 2011. (2) Includes ‘non-tech’ Cleantech IPOs (KiOR, Solazyme, & Gevo).
14
(17.7)
Semis.
Average Offer/1 Month
6
Tech Volumes Supported by The Buyside’s Premium on
Growth – Low-Growth Sectors Seeing Highly Mixed Results
Q4 High-Growth IPO Activity
Pricing /
Deal
Withdrawn
Date
Mkt
Pricing /
Deal as Pricing
Val
Val
% of
($mm) ($mm) Mkt Val
Issuer
Q4 Low-Growth IPO Activity
vs.
Range
File /
Offer
Offer /
1 Day
Greenshoe
1 Week Current Exercised?
Sector
Withdrawn
Date
Deal
Issuer
12/15/11 Zynga Inc
1,000
6,994
14.3%
In Range
8.1%
(5.0%)
(5.3%)
(5.9%)
12/14/11 Michael Kors Holdings Ltd
1,086
3,816
24.7%
Above
11.1%
21.0%
32.8%
36.3%
a
Retail
12/12/11 Jive Software Inc
185
709
22.8%
Above
33.3%
25.4%
27.2%
33.3%
a
Technology
11/17/11 Mattress Firm Holding Corp
121
632
16.7%
In Range
5.6%
15.8%
16.0%
22.1%
a
97
423
22.8%
Below
(23.1%)
(5.0%)
(6.9%)
(14.2%)
11/16/11 Angie's List Inc
131
723
15.8%
In Range
8.3%
25.1%
13.6%
23.8%
11/15/11 InvenSense Inc
86
595
12.6%
Below
(21.1%)
18.7%
47.5%
32.8%
11/08/11 Imperva Inc
104
398
22.6%
Above
20.0%
33.3%
42.4%
11/03/11 Groupon Inc
805 12,756
5.5%
Above
17.7%
30.6%
22.1%
10/18/11 ZELTIQ Aesthetics Inc
105
21.4%
Below
(13.3%)
19.2%
16.4%
11/17/11 Intermolecular Inc
426
Technology
vs.
Range
File /
Offer
1 Day
Offer /
Greenshoe
1 Week Current Exercised?
12/15/11 Inergy Midstream LP
313
1,264
21.5%
Below
(15.0%)
12/14/11 Bonanza Creek Energy Inc
170
672
25.3%
Below
(19.1%) (19.9%) (18.9%)
12/14/11 Mid-Con Energy Partners LP
112
318
30.6%
Below
(10.0%)
0.3%
1.5%
Sector
121
1,346
7.8%
Below
6.5%
16.7%
Oil & Gas
(12.0%) (17.1%) (18.1%)
a
Technology
12/08/11 Memorial Production Partners LP
182
388
44.1%
In Range
a
Technology
12/08/11 Rose Rock Midstream LP
140
168
83.4%
In Range
93.4%
a
Technology
11/17/11 Manning & Napier Inc
163
1,067
14.1%
Below
(25.0%)
3.1%
a
Technology
11/16/11 Delphi Automotive plc
530
7,221
7.3%
In Range
(4.4%)
(3.1%) (10.8%)
(12.6%)
a
Healthcare
11/15/11 Clovis Oncology Inc
139
282
46.2%
In Range
(7.1%)
(3.4%)
(3.5%)
8.4%
a
Healthcare
202
425
42.0%
In Range
(5.0%)
0.3%
0.3%
3.2%
a
Oil & Gas
437
846
44.9%
In Range
(5.0%)
(0.7%)
1.7%
26.5%
a
300
765
39.2%
In Range
(0.8%)
0.7%
(18.3%)
Chemicals
290
726
40.0%
Below
(7.0%)
Oil & Gas
253
1,214
34.5%
(9.3%)
(2.7%)
(3.0%)
0.7%
211
726
34.9%
(8.6%)
(0.7%)
(0.5%)
2.4%
12/08/11 Peak Resorts Inc
37.8%
Internet
a
Internet 43.8%
12/08/11 HomeStreet Inc
Above 43.8%
34.3% 109.4%
109.6%
121.3%
Internet
Internet
a
37.8%
Internet
a
(4.4%)
a
831 a
16.9% Strong
BelowOutcome
(15.4%) 34.1%
Internet
-(4.4%)
(1.1%)
8.2%
a
(1.1%)
Internet 8.2%
a
Internet
13.2%
(10.3%)
InternetOutcome
Mixed
a
Internet
Weak
Phoenix New Media Ltd05/10/11
Inc19.0%13.2%
89 (9.1%)
527 (21.5%)
In Range(54.6%)
9.5%
140
831 Networks
16.9%05/04/11
(15.4%)
34.1%
(10.3%)
Internet
FriendFinder
IncBelowNetQin
50 Mobile
263
In Range
a16.9% (42.5%)
Software
____________________
(19.1%) (30.4%)
Internet (45.0%)
Source: 05/04/11
DealogicNetQin
as
31,
2011.
Excludes
SPACs,
CLEFs
&(54.6%)
deals
less
$50mm
(pre-greenshoe).
FriendFinder Networks
Inc
50of December
263 Inc
19.0%
In Range
(9.1%)
(21.5%)
(42.5%)
Internet
05/04/11
Renren
Inc 527
743 9.5%
5,531than
13.4%
Above
40.0%
28.6%
Mobile
89
16.9%
In Range
(19.1%)
(30.4%)
(45.0%)
Note: (1) Withdrawn offerings exclude IPOs pulled pre-launch or due to M&A.
16.9%05/03/11
In Range
(19.1%)
Boingo
Wireless
Inc
7840.0%
439 28.6%
17.7% Software
In
Range(22.1%)
3.9%
7439.5%
5,531
13.4%(30.4%)
Above(45.0%)
5.4%
AboveAverage
40.0%(15)
28.6%
(22.1%)
Internet (28.4%)
322 3.9%
2,223 (10.4%)
12.0%
78
439
17.7% 5.4%
In Range
a16.3% (12.9%)
(28.4%)
216 12.0%
1,478 16.7%
16.9% Comms.
10.1%
3.9%
14.3%
(5.0%)
--
-(12.0%)
(1.1%)
---
(21.5%)
(1.1%)
(4.8%)
(4.5%)
2.9%
--
(3.4%) (13.6%)
4.1%
Oil & Gas
a
Oil & Gas
Oil & Gas
a
(2.1%)
Finance
Auto/Truck
Oil & Gas
126
Chemicals
151
Metal & Steel
85
Leisure & Rec.
165
Finance
55.4%
a
Internet
In Range
(10.4%)
(12.9%)
Median
(15)
3223.9%
2,223
16.3%
a
(10.5%)
Below
05/10/11
FriendFinder
Networks
50(15.4%)
263 a
19.0% 13.2%
In Range(10.3%)
(9.1%) (21.5%)
(42.5%)
78
344 Media
22.7%Ltd
In Range
(4.4%)
(1.1%)
Internet
Phoenix
New
140 -- 831
16.9%Inc
Below 8.2%
34.1%
Internet (54.6%)
a
78
439
Average
(15) 17.7%
31.2%
Below
05/11/11
743 5,531
Boingo
Wireless13.4%
Inc
Oil & Gas
30.3%
Jiayuan.com International
05/11/11
89
527
Renren
Inc
a
13.9%
LinkedIn Corp
05/03/11
1.9%
726
International
7834.3%
344109.4%
In Range121.3% -AboveJiayuan.com
19.1%4,252
55.4%
Internet
05/18/11 1,304
LinkedIn8,031
Corp 16.2%05/11/11
353
8.3% 37.8%
Above43.8%
a22.7% 109.6%
05/04/11
Oil & Gas
2,134
Yandex NV
Renren Inc
Oil & Gas
220
05/23/11
NetQin Mobile Inc
a
342
Active Network Inc
New
Media
Ltd
140
353 4,252 International
8.3%05/11/11
AbovePhoenix
34.3%
109.4%
109.6%
121.3%
Jiayuan.com
78
344
22.7%
In Range
11.5%
(26.5%)
12/13/11 Sanchez Energy Corp
Retail
(28.6%)
Deal
1.6%
Val
Corp
35319.1%
4,252 a
8.3%
20.8%05/18/11
BelowLinkedIn
(11.8%)
1,304
8,0316.0%
16.2%22.3%
Above25.9%
55.4%
7.6%
12/14/11 Laredo Petroleum Holdings Inc
NV 7951.8%
1,304
8,031 a6.0%
16.2% 22.3%
Above 25.9%
19.1%
783 Network
4,316 18.1%
BelowYandex
(21.7%)
7.2%
Semis.
Active
Inc 05/23/11
165
20.8% 1.1%
Below
(11.8%)
165
795
Yandex
NV
3.8%
Technology
11/10/11 LRR Energy LP
16.7% 19.2%
21.5%
Technology
a
Pricing /
Mkt
Deal as Pricing
11/10/11
Chesapeake Granite Wash Trust
Average (11)
17.8%
20.4%
21.2%
Withdrawn349 2,620 17.0%
Val
%
of
vs.
File /
Offer /
Greenshoe
Date
Issuer
($mm) ($mm) Mkt Val Range
Offer
1 Day 1 Week Current Exercised? Sector
Pricing /
Deal
Mkt
Deal as Pricing
11/03/11
Rentech Nitrogen Partners LP
Median
(11)
121
709
16.7%
8.1%
19.2%
19.2%
22.1%
Withdrawn
Val
Val
% of
vs.
File /
Offer /
Greenshoe
Priced Offerings
Mkt Issuer
Deal as Pricing($mm) ($mm) Mkt Val Range
Date Deal
Offer
1 Day 1 Week Current Exercised? Sector
n
Val
Val
% of06/28/11
vs. HomeAway
File / Inc
Offer /
Greenshoe
216 2,155
10.0% In Range
5.9%
48.9%
39.4%
56.0%11/02/11aEnduro Royalty
InternetTrust
Priced Offerings
Issuer
($mm)(1) ($mm) Mkt Val Range
Offer
1 Day 1 Week Current Exercised? Sector
Withdrawn Offerings
Average
(14)
06/16/11
Bankrate
Inc
300
1,500
20.0%
In
Range
-2.3%
2.7%
10.9%
Internet
a
06/28/11 HomeAway Inc
216 2,155 10.0% In Range
5.9%
48.9%
39.4%
56.0%
Internet
fferings
a
12/15/11 FusionStorm Global Inc
175
Technology
Median
(14)
Pandora
Media
Inc20.0%39.4%
235 2,556
9.2% Internet
Above 10.9%
100.0%
8.9% (15.6%)
Internet
HomeAway Inc
216 2,155
In Range
48.9%
56.0%
06/16/11 Bankrate
Inc 10.0%06/14/11
3005.9%
1,500
In Range
-- a2.3%
2.7%
Internet 20.4%
a
11/15/11 Bluestem Brands Inc
150
Retail
Fusion-io
Inc 2.3%
234
1,478 a8.9%
15.8% (15.6%)
Above 20.4%
35.7%
18.4%
16.7%
Hardware
a
Bankrate Inc
300 1,500
In Range
Internet
06/14/11 Pandora
Media 20.0%
Inc 06/08/11
235 --2,556
9.2% 2.7%
Above10.9%
100.0%
Internet 64.9%
Withdrawn Offerings (1)
11/11/11 LaShou Group Inc
75
Technology
Holdings
Ltd (15.6%)
6535.7%
325 18.4%
19.9% 16.7%
In Range 64.9%
(10.0%) (8.6%)
5.3%
Internet
Pandora Media Inc
235 2,556
9.2%06/08/11
AboveTaomee
100.0%
Internet
06/08/11 Fusion-io
Inc
234
1,4788.9%
15.8%
Above20.4%
Hardware16.3%
a
12/15/11 GSE Holding Inc
05/25/11
Freescale
Semiconductor
783
4,316
18.1%
Below
(21.7%)
1.8%
1.1%
7.2%
Semis.
a
Fusion-io Inc
234 1,478
15.8%
Above
35.7% 325
18.4%
64.9%
06/08/11 Taomee
Holdings
Ltd
65
19.9%16.7%
In Range
(10.0%) a
(8.6%) Hardware
5.3%
16.3%
Internet
12/14/11 Luxfer Holdings plc
Active
Network
Inc18.1% 5.3%
165(21.7%)
795 1.8%
20.8% Internet
Below 7.2%
(11.8%)
6.0%
22.3%
Internet
Taomee Holdings Ltd 05/25/11 Freescale
65
325
19.9%05/24/11
In Range
(10.0%)
a
Semiconductor
783
4,316(8.6%)
Below16.3%
1.1%
Semis. 25.9%
a
10/13/11 Ubiquiti Networks Inc
Boingo Wireless Inc
Deal as Pricing
Priced Offerings
Priced Offerings
Freescale Semiconductor
05/24/11
Mkt
Val
Val
% of
($mm) ($mm) Mkt Val
5.4%
Software(22.1%)
(10.4%)
(12.9%)
Internet (28.4%)
a
16.7%
6.0%
15
10.1%
Comms. 14.3%
5.3%
10.9%
a
Internet
Comms.
Outcome
Marquee Growth IPOs Had a Rocky Road in 2011
Key Takeaways

Significant premiums were paid for companies that were considered a
“category definer” and that also had a strong growth profile



Post-IPO Performance Struggled (1)
100%

90.0%
84.6%
75%
Investors looking to “juice” performance in highly volatile portfolios
Post-IPO performance showed a very mixed set of results, as many
“marquee” IPOs saw sharp declines immediately post-IPO

100.0%
92.3%
At-IPO valuations garnered were rich, as scarcity value drove up
multiples paid
50%
Timing, allocations, and low barriers to entry were the primary culprits
for the lack of sustainable performance
25%
Investors became more prone to locking-in profits from IPO winners to
subsidize volatility and underperformance elsewhere in the portfolio
(0%)
52.8%
28.6%
Priced Abov e
Midpoint
Of f er/1 Day
Of f er/1 Week
Of f er/1 Month Of f er/6 Months Of f er/Current
% of "Marquee" IPOs Above Issue Price
Investors Sold High-Flying Growth IPOs to Lock-In Alpha
IPO Date
07/19/11
06/14/11
04/13/11
06/28/11
05/18/11
06/08/11
11/03/11
12/15/11
11/16/11
12/12/11
Initial Range
$12.00 - $14.00
$7.00 - $9.00
$14.00 - $16.00
$24.00 - $27.00
$32.00 - $35.00
$13.00 - $15.00
$16.00 - $18.00
$8.50 - $10.00
$11.00 - $13.00
$8.00 - $10.00
IPO Price
$20.00
$16.00
$18.00
$27.00
$45.00
$19.00
$20.00
$10.00
$13.00
$12.00
Peak
(Date)
$60.00
(7/20/11)
$26.00
(6/15/11)
$31.50
(4/14/11)
$45.75
(9/7/11)
$122.70
(5/19/11)
$41.74
(11/16/11)
$31.14
(11/4/11)
$11.50
(12/16/11)
$18.75
(11/17/11)
$16.86
(12/27/11)
Current
$22.48
$10.01
$13.42
$23.25
$63.01
$24.20
$20.63
$9.41
$16.10
$16.00
Peak/Current
(62.5%)
(61.5%)
(57.4%)
(49.2%)
(48.6%)
(42.0%)
(33.8%)
(18.2%)
(14.1%)
(5.1%)
Offer/Current
12.4%
(37.4%)
(25.4%)
(13.9%)
40.0%
27.4%
3.1%
(5.9%)
23.8%
33.3%
____________________
Source: Dealogic as of December 31, 2011. Excludes SPACs, CLEFs & IPOs less than $50mm (pre-greenshoe). (1) ‘Marquee’ IPOs include all IPOs listed in table plus Michael Kors and Yandex.
16
China IPOs: The Bloom Has Fallen From the Rose… For Now
Key Takeaways
On average, Chinese IPOs have lost
64% of their value from their postIPO peaks to year-end



Once highly sought after as a play on
Chinese growth, US-listed Chinese
IPOs have completely lost faith from
US investors


Accounting and compliance
scandals / controls
Concerns of Chinese “hardlanding”
Concerns of Chinese housing
bubble
Recent SEC changes for Foreign
Private Issuers may impact the pace
of filings going forward

Foreign Private Issuers can
no longer file confidentially
(64.2%)
8
Avg. Non-Chinese IPO Peak-to-Current: (27.9%)
7
50%
6
25%
4
(0%)
2
2
(25%)
1
(50%)
01/2011
04/2011
0
07/2011
Chinese IPOs Priced
Key reasons for underperformance


Only 1 of 10 2011 Chinese
deals remains above issue
price (Qihoo 360 +8%)
Avg. Chinese IPO Peak-to-Current:
75%
-0
12/2011
09/2011
2011 Chinese IPO Index
# Chinese IPOs Priced

10 Chinese IPOs priced in 2011, with
only one in the second half
2011 IPO Index Performance

Chinese IPOs Have Suffered a Complete Loss of Momentum
2011 Non-Chinese IPO Index
2011 Chinese IPO Details
Pricing
Date
Issuer
Base Deal Mkt Val
($mm)
($mm)
08/16/11 Tudou Holdings Ltd
Deal as %
%
Pricing vs.
of Mkt Val Secondary
Range
174
822
21.2%
06/08/11 Taomee Holdings Ltd
65
325
05/11/11 China Zenix Auto International
77
310
05/11/11 Jiayuan.com International Ltd
78
Offer /
File /
Offer
1 Day
1 Week
Current
Greenshoe
Exercised?
Sector
7.2%
In Range
0.0%
(11.9%)
(20.7%)
(62.1%)
Technology
19.9%
--
In Range
(10.0%)
(8.6%)
5.3%
(48.7%)
Technology
25.0%
10.0%
Below
(42.9%)
(2.5%)
1.3%
(49.3%)
344
22.7%
5.6%
In Range
0.0%
(4.4%)
(1.1%)
(46.9%)
a
Technology
140
831
16.9%
9.9%
Below
(15.4%)
34.1%
13.2%
(48.8%)
a
Technology
89
527
16.9%
--
In Range
9.5%
(19.1%)
(30.4%)
(54.2%)
05/04/11 Renren Inc
743
5,487
13.5%
19.2%
Above
40.0%
28.6%
5.4%
(74.6%)
a
Technology
04/20/11 21Vianet Group Inc
195
806
24.2%
--
Above
36.4%
25.3%
8.3%
(39.0%)
a
Technology
03/29/11 Qihoo 360 Technology Co Ltd
176
1,674
10.5%
--
Above
26.1%
134.5%
101.8%
8.2%
a
Technology
63
186
33.8%
27.8%
In Range
(8.7%)
0.0%
3.8%
(62.1%)
a
Technology
Mean, Chinese IPOs (10):
180
1,131
20.5%
8.0%
3.5%
17.6%
8.7%
(47.8%)
Median, Chinese IPOs (10):
115
667
20.5%
6.4%
Mean, Non-Chinese IPOs (105):
327
1,700
32.0%
21.8%
Median, Non-Chinese IPOs (105):
171
695
24.7%
05/11/11 Phoenix New Media Ltd
05/04/11 NetQin Mobile Inc
01/27/11 BCD Semiconductor Manufacturing
____________________
Source: Dealogic and FactSet as of December 31, 2011. Excludes SPACs, CLEFs & IPOs less than $50mm (pre-greenshoe).
17
0.0%
0.0%
0.4%
0.0%
(1.3%)
4.6%
(49.1%)
10.3%
11.4%
(3.5%)
3.5%
4.2%
(5.9%)
Auto/Truck
Technology
Pace of IPO Filings Expectedly Slowed as 2011 Closed, but
Backlog Heading into 2012 is Robust
Key Takeaways



Tech IPO backlog grew by 61%
from January to year-end, and the
overall backlog grew by a slightly
more modest 44%
The pace of filings definitively slowed
into year-end, as fatigue set in on
issuers from a difficult 2011, much like
buy-side fatigue experienced on late
2011 roadshows
42
38
# Tech IPO Filings

15
IPOs on file for >6 months and >1
year now represent 33% and 18%
of the current overall backlog,
and 25% and 16% for Tech
28
44
44
36
50
40
27
30
11
5
20
11
10
7
6
5
3
3
10
4
2
0
0
Jan
Feb
Mar
Apr
May
Jun
Jul
# Tech IPO Filings
Aug
Sep
Oct
Nov
178
174
Dec
# Tech IPOs in Backlog
Overall Pipeline Remains at Recent Highs
40
181
168
30
134
116
145
144
149
157
200
166
150
113
20
100
31
34
30
29
24
10
13
24
50
16
11
13
14
Nov
Dec
7
0
0
Jan
Feb
Mar
Apr
____________________
Source: Dealogic as of December 31, 2011.
Excludes SPACs, CLEFs, & IPOs with filed proceeds of less than $50mm or on file for over two years.
May
Jun
# IPO Filings
18
Jul
Aug
Sep
# IPOs in Backlog
Oct
# All IPOs in Backlog

31
7
However, IPOs in backlog for an
extended period of time increased in
2011 and represent a pool of offerings
with relatively smaller probabilities of
pricing transactions
Total IPOs on file for >6 months
and >1 year grew by 23% and
71%, respectively, in 2011
10
44
32
5
Sponsors and issuers appear to be
adjusting to a “new paradigm of
volatility” in which heightened levels
of risk are being deemed acceptable

35
44
# Tech IPOs in Backlog
The IPO backlog grew steadily
throughout the year, partly due to a
slower pace of executions
# All IPO Filings

Large Backlog of Tech Issuers Looking for a Receptive 2012
Backlog Takeaways: What Can We Expect to Convert?
Key Takeaways

Historical data around conversion of
filed IPOs to priced IPOs can give a
broad sense on activity level that could
be expected next year





For 2012 forecast purposes, we
have assumed modestly higher
conversion rates than historical
average to represent a better
macro environment and equity
fund inflows
# IPOs Converted from Backlog
<6 Months 6 M-1 Yr
1-2 Yrs
Total
Year
Additionally, ~41% of new filings
during any given year priced during
that same year
Given a total current backlog of 166
and a filing pace consistent with
historical averages (215), we could
expect ~171 IPOs to price in 2012
This would represent a 33%
increase in activity vs. 2011
On average, ~25% of new filings each
year are in the Tech sector

When applying the same
methodology as above and
assuming 25% of 2012 filings are
Tech, we could expect 45 Tech
IPO pricings in 2012
Total # in Backlog at Beginning of Year
<6 Months 6 M-1 Yr
1-2 Yrs
Total
% of Backlog Converted
<6 Months 6 M-1 Yr
1-2 Yrs
2007
44
1
1
46
67
20
9
96
65.7%
2008
15
1
0
16
82
22
14
118
18.3%
2009
8
9
5
22
32
31
30
93
25.0%
2010
33
1
4
38
65
4
28
97
50.8%
2011
25
11
2
38
54
44
17
115
2012
NA
NA
NA
NA
83
54
29
2012 Tech
NA
NA
NA
NA
26
11
7
5.0%
Total
11.1%
47.9%
4.5%
0.0%
13.6%
29.0%
16.7%
23.7%
25.0%
14.3%
39.2%
46.3%
25.0%
11.8%
33.0%
166
NA
NA
NA
NA
44
NA
NA
NA
NA
Average
41.2%
17.7%
10.8%
31.5%
Average, Ex-2008
46.9%
21.0%
13.5%
35.9%
Historical % of New Filings Each Year that Priced in the Same Year
Year
Total Filed &
Priced in Year
Total
Filed
% Filings Priced
in Same Year
2007
146
279
52.3%
2008
11
102
10.8%
2009
36
110
32.7%
2010
103
223
46.2%
2011
77
246
31.3%
Average
75
192
34.7%
Average, Ex-2008
91
215
40.6%
Recently, ~36% of deals in the yearend backlog priced the next year


Clearly, macro developments will
have a large impact on 2012
conversion rates
Historical % of Backlog Converted
2012 Pricing Expectations
Assumptions
2011 YE Total Backlog
2011 YE Tech Backlog
Historical Avg. Conversion %
Assumed 2012 Conversion %
<6 Months
83
26
46.9%
55.0%
Length on File
6 Months - 1 Year
54
11
21.0%
25.0%
1 - 2 Years
29
7
13.5%
15.0%
Total
166
44
--
Exp. Total 2012 Pricings from Backlog
Exp. Tech 2012 Pricings from Backlog
46
14
14
3
4
1
64
18
Historical Avg. New Filings Per Year
Avg. % Filings that Priced in Same Year
Assumed 2012 % Filings Priced in Same Year
Avg. % Filings Per Year that are Tech
215
41%
50%
25%
Exp. 2012 Pricings from New Filings
Exp. 2012 Tech Pricings from New Filings
107
27
Total Exp. 2012 Pricings
171
45
Tech Exp. 2012 Pricings
____________________
Source: Dealogic as of December 31, 2011. Excludes SPACs, CLEFs, & IPOs with filed proceeds of less than $50mm or on file for over two years.
19
IPO On-Ramp Concept
 IPO Task Force Report
U.S. IPO market severely declined from 2001-2008, with IPOs by smaller
companies showing the steepest decline
Decline caused by a series of regulatory and market structure changes that:
drive up costs for smaller companies looking to go public;
constrain the amount of information available to investors about such
companies; and
shift the economics of investment banking away from long-term investing in
such companies and toward high-frequency trading of large-cap stocks, thus
making the IPO process less attractive to, and more difficult for, smaller
companies
This is MoFo.
20
IPO On-Ramp Concept (cont’d)
Four principal recommendations to the Treasury Department:
providing an “on-ramp” (or phasing in of disclosure requirements) for smaller
companies that complete IPOs;
improving the availability and flow of information for investors before and after
an IPO;
lowering the capital gains tax rate for investors who purchase shares in an
IPO and hold these shares for a minimum of two years; and
educating issuers about how to succeed in the new capital markets
environment.
Task Force stressed that these recommendations purport only to adjust the scale
of current regulations, not change the focus on investor protection
This is MoFo.
21
IPO On-Ramp Legislation
 The “Reopening American Capital Markets to Emerging Growth Companies
Act of 2011”
 Amends Section 2(a) of the Securities Act and Section 3(a) of the Exchange
Act by creating a new category of issuer called an “emerging growth
company”
 “Emerging growth company” would be defined as an issuer that had total
annual gross revenues of less than $1 billion dollars at the end of its most
recent completed fiscal year, and following the initial public offering, less
than $700 million in publicly traded shares. An issuer that is an emerging
growth company as of the first day of that fiscal year shall remain one until
the earliest of:
 the last day of the fiscal year of the issuer during which it had total annual gross
revenues of $1 billion or more or $700 million in public float;
 the last day of the fiscal year of the issuer following the fifth anniversary of the date of
first sale of common equity securities of the issuer pursuant to an effective Securities
Act registration statement; and
 the date on which the issuer is considered to be a Large Accelerated Filer as defined by
the SEC.
This is MoFo.
22
IPO On-Ramp Legislation
 Permits filing a registration statement with the SEC on a confidential
basis
 Expands the range of permissible pre-filing communications made to
qualified institutional buyers or accredited investors
 Requires emerging growth companies to provide only two years of
audited financial statements to the SEC (rather than three years),
and removes the auditor attestation requirement
 Allows brokers and dealers, even if they were participating in the
underwriting process, to publish research reports about emerging
growth companies prior to the IPO
This is MoFo.
23
Staying Private
This is MoFo.
24
500-Holder Rule
 In light of the issues arising in connection with private companies
choosing to stay private longer, pressure is being put on the 500holder rule
 Currently, there is proposed legislation that would amend the 500holder rubric
This is MoFo.
25
Exchange Act reporting
 Voluntary listing
 Initial public offering – capital raise, plus listing
 Tripping threshold:
Total assets exceeding $10m as of the last day of company’s fiscal year,
A class of equity securities held of record by 500 or more persons.
 Important developments
Use of stock-based compensation for employees. SEC has provided some relief.
Increased trading of stock of private companies
Formation of special purpose vehicles to invest in stock of privately held
companies
Private companies deferring IPOs
This is MoFo.
26
Legislative proposals
 Increase threshold to 2000 for banks and bank holding companies
only
 Increase threshold to 1000 for all companies
 Exclude holders who acquired shares through exempt crowdfunding
from the count
 Exclude holders who received their shares pursuant to a
compensation plan from the count
This is MoFo.
27
Private Placements
This is MoFo.
28
Regulation D – Rules 501-508
 Regulation D provides a non-exclusive safe harbor
 The satisfaction of the conditions of the Regulation D safe harbor will
ensure that there is no “public offering”
 Section 4(2) is still available
 Regulation D contains the following offering exemptions:
Rule 504: available for offerings of up to $1 million;
Rule 505: available for offerings of up to $5 million to an unlimited number of
accredited investors and up to 35 other purchasers; and
Rule 506: available for private placement offerings of an unlimited amount of
money to an unlimited number of accredited investors and up to 35 other
purchasers that are sophisticated
This is MoFo.
29
Rule 506 Safe Harbor Requirements
 Rule 506 is the most widely used exemptive rule under Regulation D,
accounting for the overwhelming majority of capital raised under
Regulation D
 Requirements of a Rule 506 private placement include:
 No dollar limit on size of transaction
 Unlimited number of accredited investors and no more than 35 unaccredited
investors
 No general solicitation or advertising
 Resale limitations
 Disclosure required for non-accredited investors
 Form D filing within 15 days of first sale of securities
 Good faith effort to comply (Rule 508)
 Currently, no “bad actor” disqualification provisions
This is MoFo.
30
Rule 506 Purchasers
 Accredited Investors (Rule 501) include:
Institutional investors such as banks, S+Ls, broker-dealers, insurance companies,
investment companies
Corporations or trusts with assets in excess of $5 million
Not formed for purpose of making the investment (look-through rule)
Directors and officers of the issuer
Individuals with:
Income > $200,000 or joint income > $300,000
Net worth or joint net worth > $1 million*
Entity in which all equity owners are accredited investors
* Dodd-Frank Act of 2010 amended definition to eliminate ability of individuals to include the
equity value of primary residences in calculation of net worth.
This is MoFo.
31
“Accredited Investor” Reviews
 The Dodd-Frank Act provides that, upon enactment and for four
years following enactment, the net worth threshold for accredited
investor status will be $1 million, excluding the equity value (if any) of
the investor’s primary residence
 One year after enactment, the SEC is authorized to review the
definition of the term “accredited investor” (as it is applied to natural
persons) and to adopt rules that adjust the definition, except for
modifying the net worth threshold
 Four years after enactment, and every four years thereafter, the SEC
must review the “accredited investor” definition as applied to natural
persons, including adjusting the threshold (although it may not be
lowered below $1 million)
This is MoFo.
32
New Accredited Investor Definition
 The SEC has adopted amendments to the accredited investor standards to
reflect the requirements of the Dodd-Frank Act
 As amended, Rules 215(e) and 501(a)(5) define as an accredited investor:
 “Any natural person whose individual net worth, or joint net worth with that person’s spouse,
at the time of purchase, exceeds $1,000,000, excluding the value of the primary residence
of such natural person, calculated by subtracting from the estimated fair market value of the
property the amount of debt secured by the property, up to the estimated fair market value
of the property.”
 The SEC added the phrase “calculated by subtracting from the estimated
fair market value of the property the amount of debt secured by the
property, up to the estimated fair market value of the property”
 The SEC stated that the purpose of adding this phrase is to clarify that net worth is
calculated by excluding only the investor’s net equity in the primary residence
This is MoFo.
33
Bad Actors
This is MoFo.
34
New “Bad Actor” Disqualification
 On May 25, 2011, the SEC proposed amendments to rules
promulgated under Regulation D to implement the Dodd-Frank Act’s
provision regarding ‘bad actors’ for Regulation D
 Unlike Rule 505 of Regulation D, Regulation E and Regulation A,
Rule 506 of Regulation D does not currently have any “bad actor”
disqualification provisions
“Bad actor” disqualification requirements prohibit issuers and others, such as
underwriters, placement agents, directors, officers, and shareholders of the
issuer, from participating in exempt securities offerings, if they have been
convicted of, or are subject to court or administrative sanctions for, securities
fraud or other violations of specified laws.
 The SEC proposed similar amendments in 2007, but did not take
final action on that proposal (SEC Rel. No. 33-8828 (Avail. August 3,
2007))
This is MoFo.
35
Section 926 of Dodd-Frank
 Requires the SEC to adopt rules that would make the exemption
available under Rule 506 unavailable for any securities offering in
which certain “felons” or other “bad actors” are involved
 Requires the new rules to be substantially similar to the bad actor
disqualification provisions of another limited offering exemptive rule,
Rule 262, the bad actor disqualification provisions specified in
Regulation A
This is MoFo.
36
Covered Persons
 Proposed amendments would add a new Section 506(c) to
Regulation D.
Comment period ended on July 14, 2011
Technically, the rule must be adopted by July 21, 2011 (still not adopted)
 The new section would encompass disqualification provisions that
are currently codified in Rule 262 of Regulation A and in section
926(1) of the Dodd-Frank Act
This is MoFo.
37
Covered Persons (cont’d)
 The disqualification provisions in proposed Rule 506(c) generally
correspond to the persons currently covered under Rule 262 and
would thus apply to the following “covered persons”:
the issuer and any predecessor of the issuer or affiliated issuer, any director, or
any officer;
any director, officer, general partner, or managing member of the issuer;
any beneficial owner of 10 percent or more of any class of the issuer’s equity
securities;
any promoter connected with the issuer in any capacity at the time of the sale;
any person that has been or will be paid, directly or indirectly, remuneration for
solicitation of purchasers in a securities offering; or
any director, officer, general partner, or managing member of any compensated
solicitor
This is MoFo.
38
Disqualifying Events
 The proposed rule includes seven categories of disqualifying events:
Criminal convictions;
Court injunctions and restraining orders;
Final orders of certain state regulators (such as securities, banking, and
insurance) and federal regulators;
Commission disciplinary orders relating to brokers, dealers, municipal securities
dealers, investment advisers, and investment companies and their associated
persons;
Suspension or expulsion from membership in, or suspension or barring from
association with a member of, a securities self-regulatory organization (“SRO”);
Commission stop orders and orders suspending a Regulation A exemption; and
U.S. Postal Service false representation orders
This is MoFo.
39
Disqualifying Events (cont’d)
 Section 926(2)(B) of the Dodd-Frank Act provides for disqualification
if any covered person “has been convicted of any felony or
misdemeanor in connection with the purchase or sale of any security
or involving the making of any false filing with the Commission”
 Also includes a five-year look-back period for criminal convictions of
issuers and a ten-year look-back period for other covered persons
 SEC is seeking comments on:
whether a longer look-back period is appropriate
whether the inquiry should focus on the beneficial ownership structure of an entity
at the time of the disqualifying event, on the application of the rule to the date of
the relevant sale, on the scope of the application
whether corresponding convictions in foreign courts should trigger disqualification
This is MoFo.
40
Measuring dates
 For purposes of ascertaining compliance, the measuring period
begins on the date on which the issuer seeks the exemption
 The SEC measures the bad act from the date of a final order and not
from the date of the bad act
This is MoFo.
41
Reasonable Care Exception
 Proposed Rule 506 incorporates a reasonable care exception that
would apply if an issuer can establish that it did not know and, in the
exercise of reasonable care, could not have known that a
disqualification existed because of the presence or participation of a
covered person.
 The reasonable care exception would help preserve the intended
benefits of Rule 506 and avoid creating an undue burden on capitalraising activities, while giving effect to the legislative intent to screen
out felons and bad actors.[1]
 Issuer would need to conduct a factual inquiry.
[1] Regulation D already has a provision, Rule 508, under which “insignificant deviations” from the terms, conditions, and
requirements of Regulation D will not result in the loss of the exemption if the person relying on the exemption can show
that: (i) the failure to comply did not pertain to a term, condition or requirement directly intended to protect that
individual or entity; (ii) the failure to comply was insignificant with respect to the offering as a whole; and (iii) a good faith
and reasonable attempt was made to comply. The Commission does not believe that Rule 508 would cover
circumstances in which an offering was disqualified under proposed Rule 506(c).
This is MoFo.
42
Satisfying reasonable case burden
 Issuers will be required to implement new procedures in connection
with any Rule 506 offering
this may be especially burdensome for private funds that regularly conduct private
offerings in reliance on Rule 506
 Issuers may consider:
adding additional questions to D&O questionnaires,
requiring placement agents to complete a questionnaire or provide a
representation
require other participants (that may be covered persons) to complete
questionnaires or provide representations
This is MoFo.
43
Waivers
 Currently, issuers may seek waivers of disqualification under
Regulation A if the issuer shows good cause.
 Proposed Rule 506(c)(2)(i) carries over the current waiver provisions
of Regulation A.
 Waivers under the new rule will be issued by the Commission.
This is MoFo.
44
Blue Sky Considerations
 Securities that are sold pursuant to Rule 506 are considered
“covered securities” for purposes of Section 18(b)(4)(D) of the
Securities Act
this means that securities sold in reliance on Rule 506 are exempt from state
securities review
 An issuer that relies on Section 4(2) will need to consider state
securities requirements
This is MoFo.
45
FINRA Developments
This is MoFo.
46
FINRA Notice 10-22
 FINRA issued Regulatory Notice 10-22 in April 2010 reminding brokerdealers of their diligence obligations in connection with Reg D offerings
 FINRA has stated that it will focus on abuses in the private placement
market
 The Notice emphasizes a broker-dealer’s obligation to conduct diligence on
the issuer, management, the issuer’s business and prospects, the
representations and warranties made by the issuer, and the intended uses
of proceeds
 Scope of investigation depends upon recommendation, role of broker in
transaction, knowledge of issuer and size/stability of issuer; should be
tailored and BD must follow up on red flags. BDs must also conduct
suitability analysis for investors
 Following the issuance of Notice 10-22, FINRA has been quite active on the
enforcement side taking actions against member firms in connection with
private placements (including private placements involving non-traded
REITs)
This is MoFo.
47
FINRA 5123
 FINRA has proposed Rule 5123, which will apply to private
placements
 Proposed new rule would affect all private placements where a
FINRA member firm offers or sells the security or participates in the
preparation of any offering or disclosure document
This is MoFo.
48
Rule 5123
 Disclosure: any term sheet or PPM to be provided to investors prior
to sale must describe: use of proceeds; amount and type of offering
expenses; compensation to funders, members, etc.
 Notice Filings with FINRA: within 15 days after date of first sale. A
designated member can file on behalf of all members in the private
placement.
 If no disclosure document is used, a participating member must still
make a notice filing identifying all participating members and stating
that no disclosure document was used.
 Limited exemptions: exemptions for non-convertible debt or
preferred; 3(a)(3) exempt securities; 144A/Reg S offerings; or
offerings solely to QPs/QIBs or “institutional accredited investors”
 Confidentiality provisions similar to those included in Rule 5122.
This is MoFo.
49
General Solicitation
This is MoFo.
50
No General Solicitation or Advertising
 Prohibition applies to issuer and its agents
 Rule 502(c):
No general solicitation or advertising
No seminar with attendees invited by general solicitation or advertising.
 Importance of preexisting substantive relationship with offerees.
 Importance of process safeguards.
 The significance of being “in registration.”
Black Box and Squadron, Elenoff No-Action letters (QIBs and a limited number of
institutional accredited investors) and C&DIs
 Rule 135c:
Safe harbor for limited issuer announcement of exempt offering.
 Allows for name of issuer, title amount and basic terms of securities, timing
and purpose of offering. Cannot name placement agents.
This is MoFo.
51
SEC Review of General Solicitation Ban
 In a letter dated April 6, 2011,* SEC Chairman Schapiro advised an SEC
staff review of whether the general solicitation ban should be revisited in
light of the current technologies and capital raising trends
 The SEC Chairman re-stated the justification for the ban:
 “The ban was designed to ensure that those who would benefit from the safeguards of
registration are not solicited in connection with a private offering.”
 “I recognize that some continue to identify the general solicitation ban as a significant
impediment to capital raising for small businesses. I also understand that some believe that
the ban may be unnecessary because those who do not purchase the offered security
would not be harmed by the solicitation that occurs. At the same time, the general
solicitation ban is supported by others on the grounds that it helps prevent securities fraud
by making it more difficult for fraudsters to attract investors or unscrupulous issuers to
condition the market.”
* The letter was in response to a letter dated March 22, 2011, from Chairman Issa of the House
Committee on Oversight and Government Reform.
This is MoFo.
52
General solicitation
 Over the years, there have been many proposals to address the
prohibition against general solicitation; it is likely that the SEC will
consider those
 The SEC has said that it is considering a concept release on the
issue
 Legislative proposal pending that would amend Rule 506 to remove
the prohibition against general solicitation provided all of the
purchasers are accredited investors
This is MoFo.
53
Regulation A
This is MoFo.
54
Regulation A – Rules 251-263
Conditional Small Issues Exemption
 The Small Company Capital Formation Act (introduced on March 14,
2011) will increase the offering threshold under Regulation A from $5
million to $50 million
 Currently, Regulation A allows for an offering of up to $5M of
securities of an issuer including up to $1.5M of securities offered by
selling security holders in any 12-month period
 Requires filing of a Form 1-A Offering Statement and delivery of
Offering Circular to investors
 Amendment (May 3, 2011) provides for a corresponding state “Blue
Sky” exemption for Regulation A offerings offered by means other
than through a broker dealer
Many observers have been welcoming this change
This is MoFo.
55
Reg A Basics
 Eligible issuers - principal place of business in the United States or
Canada, and not subject to Section 13 or Section 15 reporting before
the offering and not disqualified
 Primary offerings or secondary offerings (subject to certain
limitations)
 Bad actor disqualification
 Offering threshold – currently $5m per 12-month period, or $1.5m for
selling stockholder (not aggregated with other exempt offerings)
 Integration safe harbors – not integrated with subsequent Reg S
offerings or 701 offerings or completed exempt offerings (Section
4(2) or Reg D). Other than the safe harbor, one would consider the
same five-factor test.
This is MoFo.
56
Reg A Basics (cont’d)
 Offering statement requirement, which includes financial statements
 Offering communications – under Reg A, an issuer may “test the
waters”
 Nature of the securities – the securities sold in reliance on Reg A are
not “restricted securities”
 Blue sky
 Liability
This is MoFo.
57
Crowdfunding
This is MoFo.
58
Crowdfunding
 Crowdfunding permits entrepreneur to pool money from individuals
who have a common interest and are wiling to contribute to a venture
 Crowdfunding may or may not involve the sale of securities
 To the extent the effort involves the sale of securities then the
offering must be registered or must rely on an exemption
 A recent enforcement action highlighted this issue
 The SEC has committed to looking at crowdfunding more closely
 Pending legislation would amend Section 4 of the Securities Act to
create a limited exemption for crowdfunding
This is MoFo.
59
Summary of Pending Legislation
This is MoFo.
60
Exempt & Small Issuer Measures
Introduced in the 112th Congress
 On February 28, 2012, the House Republican Leadership
announced plans to incorporate the provisions of H.R. 1070, H.R.
2167, H.R. 2930, H.R. 2940 and H.R. 4088 into an amended version
of H.R. 3606, which is renamed the “Jump-Start Our Business StartUps Act” or “JOBS Act.”
 The JOBS Act is scheduled for debate the week of March 5, 2012.
 If, as anticipated, the House passes the amended version of H.R.
3606, the House measures listed in the following tables will be
replaced by that legislation.
This is MoFo.
61
Exempt & Small Issuer Measures
Introduced in the 112th Congress
Subject
House Bill No.
H.R. 1070
Regulation A
(Schweikert, R-AZ)
Small Company Capital
Formation Act of 2011
Current Status
Key Legislative Actions
Pending in Senate
(Calendar No. 222).
11/2/2011 – House: agreed to by the Yeas and Nays:
(2/3 required) 421-1 (Roll no. 820).
9/14/2011 – Reported (as amended) by the Committee
on Financial Services (H.R. Rep. 112-206).
3/16/2011 – Hearings held by the Subcommittee on
Capital Markets and Government Sponsored
Enterprises.
3/14/2011 – Introduced in House.
Pending in Senate
(Calendar No. 223).
11/2/2011 – House agreed to by the Yeas and Nays (2/3
required): 420-2 (Roll no. 819).
10/26/2011 – Ordered to be reported by voice vote (no
written report issued).
9/21/2011 – Hearings Held by the Subcommittee on
Capital Markets and Government Sponsored
Enterprises.
5/24/2011 – Introduced in House.
H.R. 1965
Bank Threshold
(↑2,000)
(Himes, R-CT)
To amend the securities laws to
establish certain thresholds for
shareholder registration, and for
other purposes.
This is MoFo.
Senate Bill No.
Current Status
Key Legislative Actions
S. 1544
12/1/2011 – Hearings held before
the Senate Committee on
Banking, Housing, and Urban
Affairs.
12/1/2011 – Hearings held
before the Senate Committee
on Banking, Housing, and
Urban Affairs.
9/12/2011 – Introduced in the
Senate.
3/10/2011 – Read twice and
referred to the Committee on
Banking, Housing, and Urban
Affairs
12/5/2011 – Status: Read twice
and referred to the Committee on
Banking, Housing, and Urban
Affairs
3/10/2011 – Introduced in the
Senate.
12/5/2011 – Introduced in the
Senate.
(Tester, D-MT)
Small Company Capital
Formation Act of 2011
S. 556
(Hutchison, R-TX)
S. 1941
(Hutchison, R-TX)
62
Exempt & Small Issuer Measures
Introduced in the 112th Congress (cont’d)
Gen’l Threshold
(↑1,000 in House and
↑2,000 in Senate)
H.R. 2167
(Schweikert, R-AZ)
Private Company Flexibility
and Growth Act
H.R. 2930
Crowdfund-ing
This is MoFo.
(McHenry, R-NC)
Entrepreneur Access to
Capital Act
Pending in House
(Union Calendar No.
223).
.12/12/2011 – Placed on House Union Calendar (No. 223)
12/12/2011 – Reported (as amended) by voice vote (H.
Rept. 112-327).
9/21/2011 – Hearings Held by the Subcommittee on
Capital Markets and Government Sponsored
Enterprises.
6/14/2011 – Introduced in House.
Pending in Senate
(Calendar No. 224).
12/1/2011 – Hearings held before the Senate Committee
on Banking, Housing, and Urban Affairs.
11/3/2011 – Passed House by recorded vote: 407 - 17
(Roll no. 825).
10/31/2011 – Reported (as amended) by the Committee
on Financial Services (H.R. Rep. 112-262).
9/21/2011 – Hearings Held by the Subcommittee on
Capital Markets and Government Sponsored
Enterprises.
9/14/2011 – Introduced in House.
S. 1824
(Toomey, R-PA)
Private Company
Flexibility and Growth
Act
S. 1791
(Brown, R-MA)
Democratizing Access to
Capital Act of 2011
12/1/2011 – Hearings held before
the Senate Committee on
Banking, Housing, and Urban
Affairs.
12/1/2011 – Hearings held before
the Senate Committee on
Banking, Housing, and Urban
Affairs.
11/8/2011 – Introduced in the
Senate.
12/1/2011 – Hearings held before
the Senate Committee on
Banking, Housing, and Urban
Affairs.
12/1/2011 – Hearings held before
the Senate Committee on
Banking, Housing, and Urban
Affairs.
11/2/2011 – Introduced in the
Senate.
63
Exempt & Small Issuer Measures
Introduced in the 112th Congress (cont’d)
H.R. 2940
Reg. D Advertising
Creates an “on ramp” to
the capital markets and
certain exemptions for
“emerging-growth”
companies.
This is MoFo.
(McCarthy, R-CA)
Access to Capital for Job
Creators Act
Pending in Senate (Calendar
No. 225).
H.R. 3606
(Fincher, R-TN)
The Reopening American
Capital Markets to
Emerging Growth
Companies Act
12/8/2011 – Introduced in the
House.
11/3/2011 – Passed House by recorded vote: 413
- 11 (Roll no. 828).
10/31/2011 – Reported (as amended) by the
Committee on Financial Services. (H.R. Rep.
112-263).
9/21/2011 – Hearings held by the Subcommittee
on Capital Markets and Government Sponsored
Enterprises.
9/15/2011 – Introduced in House.
12/8/2011 – Introduced in the House.
2/16/2012 – Approved by Committee on
Financial Services.
S. 1831
(Thune, R-SD)
Access to Capital for Job
Creators Act
S. 1933
(Schumer, D-NY)
The Reopening American
Capital Markets to
Emerging Growth
Companies Act
12/1/2011 – Hearings held
before the Senate Committee
on Banking, Housing, and
Urban Affairs.
12/1/2011 – Hearings held before the
Senate Committee on Banking,
Housing, and Urban Affairs.
11/9/2011 – Introduced in the Senate.
12/1/2011 – Read twice and
referred to the Committee on
Banking, Housing, and Urban
Affairs
12/1/2011 – Introduced in the Senate.
64