Because they can…. This was the conclusion of the discussion at the SEC Advisory Committee on Small and Emerging Companies earlier in the week (see our prior post regarding the meeting). The Committee discussed statistics relating to the number of companies that are undertaking IPOs, the number of venture-backed companies receiving substantial private investments, trends relating to acquisitions of venture-backed companies (presumably instead of IPOs), and the various factors contributing to this noticeable trend. The Committee hosted various speakers, including a representative of E&Y. The E&Y presentation contains interesting market data and may be accessed here: https://www.sec.gov/info/smallbus/acsec/giovannetti-presentation-acsec-021517.pdf.
Bloomberg BNA announced the recently updated SEC Reporting Issues for Foreign Private Issuers (Portfolio 5507) authored by Morrison & Foerster partners Anna T. Pinedo and James R. Tanenbaum.
This portfolio serves as a practical resource for both practitioners and foreign private issuers. This new edition explains in detail various SEC proposed and finalized rules and regulations issued in 2016. It analyzes how those regulations would affect foreign private issuers–including the updated SEC staff guidance on how foreign private issuers should disclose the use of non-GAAP financial measures.
The SEC’s Investor Advisory Committee will hold a public meeting on March 9, 2017, from 9:00 a.m. to 11:55 a.m. The meeting’s agenda includes a discussion regarding SEC investor research initiatives, the FINRA 2016 Financial Capability Study and academic research on financial literacy; and a discussion regarding unequal voting rights of common stock. The meeting will be held at the SEC’s headquarters and will also be webcast live on the SEC’s website.
During 2016, there were relatively few companies that completed initial public offerings (“IPOs”). Some commentators attribute the dearth of IPOs in 2016 to volatility arising from, among other things, Brexit and the U.S. Presidential election. Others point to the continuing trend of successful companies remaining private longer and continuing to benefit from attractive valuations in private financing rounds without facing the burdens associated with becoming Securities and Exchange Commission (“SEC”)-reporting companies.
In this year’s survey, we consider the characteristics of the emerging growth companies (“EGCs”) that completed IPOs and the corporate governance, compensation and other practices adopted by them. Specifically, we examined the filings of (i) the approximately 680 EGCs (on an aggregated basis) that completed their IPOs in the period from January 1, 2013, through December 31, 2016, and (ii) the 100 EGCs (on a standalone basis) that completed their IPOs during the year ended December 31, 2016. The survey focuses on EGCs that have availed themselves of the provisions of Title I of the Jumpstart Our Business Startups Act (“JOBS Act”). This year is anticipated to be a more active year for IPOs. Our objective is to provide data that will be useful to you in assessing whether your company’s current or proposed corporate governance practices are consistent with EGC market practice.
Read the 2017 review.
In a recent paper, authors Sergey Chernenko, Josh Lerner, and Yao Zeng consider investments by mutual funds (“cross over funds”) in 99 unicorn companies. Given the rise in recent years of investments by cross over funds in private companies, the authors compare the investments made by these funds compared to those made by venture capital funds. There have been numerous studies examining the role of venture capital funds in governance of private companies and the contribution of venture funds to promoting certain governance practices and information reporting. Not surprisingly, the authors find that more often than not cross over funds structure their investments as straight convertible preferred stock, rather than participating preferred stock. Cross over funds are more focused on cash flow rights, require stronger redemption rights, and generally are not interested in board representation or other roles in the companies. As a result, mutual funds tend not to monitor the governance of the unicorns in which they invest and function more as passive investors, without providing the type of oversight considered characteristic for venture investors. Although late-stage private placement activity declined in 2016, the trend toward companies remaining private longer remains important. As a result, understanding the roles of late-stage investors in unicorns can provide important insights. See the full paper here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2897254
On February 28, 2017, the SEC’s Division of Economic and Risk Analysis (DERA) and New York University’s Salomon Center for the Study of Financial Institutions will host a dialogue on Securities Crowdfunding in the U.S. The event, held at the SEC’s headquarters, will include a discussion on the economic rationale and legal framework for securities crowdfunding; a discussion on investor protection and capital formation in securities crowdfunding; and a presentation on the empirical evidence and data on securities crowdfunding.
Welcome remarks will start at 9:15 am. The event is open to the public and will also be webcast on the SEC’s website.
Thursday, March 9, 2017
12:30 p.m. – 2:00 p.m. EST
As the Trump Administration takes charge in 2017, the only thing that seems inevitable is that the regulatory and enforcement outlook will change. Initial indications point to a desire to relax or repeal certain regulations that may be regarded as burdensome to public companies. Also, proposed legislation would relax certain corporate governance and compensation-related measures that formed part of the Dodd-Frank Act. Proposed legislation also would address the types of cost-benefit analysis that would be required to support proposed regulation.
Don’t miss this chance to learn SEC regulations’ status and how they will likely change from experts who have been directly involved in rule-making and implementation of U.S. securities laws.
Topics to be discussed include:
- Rules that were proposed but not adopted by the SEC as part of the Dodd-Frank Act rule-making mandate;
- What to expect as far as corporate governance and executive compensation requirements;
- Final rules adopted pursuant to the Dodd-Frank Act mandate relating to extractive minerals and specialized disclosures;
- Future of the Disclosure Effectiveness initiative;
- Likely status of the rules proposed by the SEC and not yet adopted;
- Proposed changes affecting investment companies and their likely status; and
- Anticipated enforcement areas of focus.
- Andrew J. “Buddy” Donohue
Former Chief of Staff, Director of Enforcement, and Director of Investment Management, SEC
- Roberta Karmel
Centennial Professor of Law, Brooklyn Law School,
former SEC Commissioner
- Troy Paredes
Paredes Strategies LLC, former SEC Commissioner
- Anna Pinedo
Partner, Morrison & Foerster LLP
- Linda Chatman Thomsen
Partner, Davis Polk & Wardwell LLP
former Director of Enforcement, SEC
For more information, or to register, please click here.
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The SEC’s Advisory Committee on Small and Emerging Companies announced its agenda for its upcoming February 15 meeting. The committee will discuss:
- Secondary market liquidity for Regulation A Tier 2 and non-exchange listed companies;
- Broker-Dealer status of “finders”;
- Why more companies are staying private; and
- Finalizing board diversity recommendation.
The meeting is open to the public and will start at 9:30 a.m. The meeting will be webcast on the SEC’s website.
At the 35th Annual Federal Securities Institute, a representative of the Securities and Exchange Commission shared some market data.
From its effective date in June 2015 through December 2016, there were 171 Regulation A offerings filed. Of these, 76 were Tier 1 offerings and 95 were Tier 2 offerings. The aggregate proceeds sought to be raised in the filed deals was approximately $3 billion. There were 97 offerings qualified. Thus far, $238 million has been reported sold, though more complete data will be available when issuers file their reports in a few months.
From its May 2016 effective date, 163 companies have filed to undertake crowdfunded offerings. The average minimum raise sought is $100,000 and the average maximum raise is $647,000. The average time period has been between four and six months. 28 deals have been completed raising approximately $8.1 milllion. 24 issuers failed to meet the minimum amount sought and withdrew their offerings.
On February 1, 2017, the NYSE issued separate Listed Company Compliance Guidance memoranda for both U.S. companies (“Domestic Companies”) and foreign private issuers (“FPIs”) listed on the NYSE. Below is a brief overview of several of the developments and ongoing policies covered in the memoranda:
- Proposed Rule Changes Related to Shortened Settlement Cycle. Consistent with the 2016 proposal by the SEC to amend Exchange Act Rule 15c6-1(a) to shorten the standard settlement cycle from T+3 to T+2, the NYSE announced that it has proposed to adopt new NYSE rules to reflect “regular way” settlement as occurring on T+2.
- NYSE MKT Timely Alert/Material News Policy. The NYSE reminded listed companies that Part 4 of the NYSE’s Company Guide requires listed companies to release promptly news or information which might be reasonably expected to materially affect the market for the company’s securities.
- Changes to the Date of a Listed Company’s Earnings Release. Given that a change in the earnings announcement date can sometimes affect the trading price of a company’s securities, the NYSE stated that it is important for listed companies to promptly and broadly disseminate to the market: (i) news of the scheduling of earnings announcements and (ii) changes in that schedule.
- Record Dates. The NYSE explained that listed companies are required to notify the NYSE at least 10 calendar days in advance of all record dates set for any purpose.
- Meeting Dates. The NYSE recommended that shareholders receive notice of the listed company’s required annual shareholders’ meeting, along with proxy materials, at least 20 days before the meeting date.
- Shareholder Meetings and Proxy Materials. The NYSE reminded listed companies that they must solicit proxies for any annual or special meetings of shareholders, and must file three definitive copies of all proxy materials with the NYSE no later than the mailing date of the materials.
- Redemption and Conversion of Listed Securities. The NYSE noted that listed companies should promptly contact their Corporate Actions analyst prior to issuing an announcement about the redemption or conversion of a listed security.
Copies of the memoranda are available at: