With the overwhelming passage of the JOBS ACT 3.0 by the House of Representatives in July 2018, lawmakers put forth a plan to energize the IPO market by relaxing the standards for investors and lessening filing cost requirements. Many of the measures proposed by the legislation are designed to make it easier for emerging growth companies to raise funds.
The original JOBS Act, which was passed in 2012, made easier for small businesses to obtain funding by easing restrictions on certain securities offerings and developing a new retail crowdfunding exemption referred to as Regulation Crowdfunding. Some of the other changes in the original legislation included a ban on general solicitation (Title II), the creation of Finra, a Funding Portal (Title III) and the amending of Regulation A (Title IV).
JOBS Act 3.0 and Proposed Changes to Existing Law
- Enlarged Accredited Investor Definition
The existing qualifications to become an accredited investor include having a yearly income of over $200,000 for the previous two years ($300,000 when filing jointly as a couple) and have reasonable expectations earning the same income level for the current year;, or possessing a net worth greater than $1 million, not counting the investor’s primary residence. The JOBS Act 3.0 would enlarge these criteria by permitting individuals to invest money in startups on the basis of their expertise and experience.
- Greater Opportunity to “Test the Waters”
If the new Act is passed, the regulations surrounding general solicitation will be revised to allow issuers to evaluate interest of investors prior to an IPO filing by “testing the waters” with institutional accredited investors and qualified institutional buyers linked with a securities offering.
- Less Burdensome Regulatory Requirements
An additional goal of the JOBS Act 3.0 is to lower the economic costs of issuing a public offering by reducing the requirements of businesses to create quarterly financial reports.
- Make the Rules for Confidential IPOs Less Stringent
Yet another proposed change to the current investment landscape is to relax the rules that govern the filing of confidential IPOs.
- Creation of Venture Exchanges
Another important proposed adjustment to the JOBS Act is the creation of venture exchanges. These are securities markets developed specifically for trading startup and smaller securities in order to foster liquidity for early investors in private startup companies.
Taken together, these amendments would provide opportunities for new, smaller businesses to go public, with the intent to energize the venture capital marketplace and overall economy.
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