2013 has proven to be a strong year for IPOs. According to a recent PWC study, total IPO volume for 2013, as of December 17, reached 237 public company debuts, which is an increase over 2012. The overwhelming majority of these IPOs were completed by issuers that qualified as emerging growth companies. (The full details of the study are available here: http://www.pwc.com/us/en/press-releases/2013/pwc-q4-2013-ipo-watch-press-release.jhtml.) Issuers and their counsel have become progressively more comfortable with the IPO on-ramp practices. Issuers continue to rely on the confidential submission process for at least one or two amendments. EGCs are regularly relying on the executive compensation disclosure accommodations.
During 2013, the SEC also made substantial progress with JOBS Act implementation. Here is a brief recap:
Title I: The SEC recently published the report required by Section 108 regarding the disclosure requirements of Regulation S-K. Given the dialogue on disclosure reform generally, it seems safe to say that we should expect continued focus on this in 2014.
Title II: Title II provided additional legal certainty (beyond that which had been provided by pre-JOBS Act no-action letters) for matchmaking sites. Even before the Rule 506 amendments were finalized, it became clear that matchmaking sites that use the internet to reach (at that point) accredited investors would play an important role in the private financing market. During 2013, the SEC Staff provided additional guidance on these models both through the issuance of FAQs and through the issuance of no-action letters to AngelList and Funders Club. On September 23, 2013, the amendments relaxing the prohibition against general solicitation in certain Rule 506 offerings and in Rule 144A offerings became effective, as did the bad actor rules (required by the Dodd-Frank Act, not the JOBS Act). The SEC Staff also released guidance on various questions related to Rule 506 offerings and on bad actor issues. However, many questions have arisen regarding the necessary steps for investor verification in Rule 506(c) offerings, and additional guidance on these would be welcome. Relaxing the prohibition against general solicitation raises fundamental questions regarding the demarcation between “private” offerings and “public” offerings, and the integration of offerings occurring in close proximity to one another. SEC representatives have acknowledged that these integration issues will need to be tackled in the future. The SEC also proposed amendments to Regulation D, Form D and Rule 156. These have proven quite controversial, and it is difficult to predict whether certain of these amendments will be adopted.
Title III: The SEC released proposed rules establishing a framework for crowdfunded offerings.
Title IV: Most recently, the SEC released for comment proposed rules that provide a framework for Regulation A+ offerings. The SEC’s proposed rules would implement the JOBS Act mandate by amending and modernizing existing Regulation A; creating two tiers of offerings, Tier 1 for offerings of up to $5 million ($1.5 million for selling stockholders) and Tier 2 for offerings of up to $50 million ($15 million for selling stockholders); setting issuer eligibility, disclosure and reporting requirements; and imposing additional disclosure and ongoing reporting requirements, as well as an investment limit, for Tier 2 offerings, and, given these investor protection measures, making Tier 2 offerings exempt from blue sky requirements. Regulation A+ offerings may prove to be an important financing alternative for non-reporting companies seeking capital and broader market exposure.
All told, it has been a year of significant changes. Over time, we believe these changes are likelier to have more lasting impact on exempt financings than on the IPO market.