The most important provision of the JOBS Act
When the JOBS Act was passed several months ago there was much fanfare about the key provisions. Especially the raising of the number of investors that a private company could accumulate before being forced to report as a public company and the so-called “crowdfunding provision” which allows companies to raise up to $1M of private capital from an unlimited number of investors (regardless of whether they are accredited or not). The Act also changed the rules around general solicitation and advertising for certain private capital raises and eased the regulatory burden on some newly public companies.
One of the provisions that didn’t get much attention but that I felt was perhaps the most important of the Act was the provision that allowed companies to privately file an S1 registration statement with the SEC. This provision only requires companies to make their filing public 21 days prior to commencing a road-show. Prior to this, S1 filings were public as soon as they were filed – allowing anyone to see the company positioning and financial results of a potential IPO candidate. And of course by publically filing an S1, a company was declaring openly its intent to go public. The SEC review process is typically around 6 months, meaning that companies have all the public and competitive overhead of being public with none of the benefits.
The JOBS Act changed that drastically. Now companies can file privately, run the review process with the SEC in secret and only declare their intent to go public as they finalize preparations to go on the road (in effect around 5 weeks before pricing their stock). And as was just reported, many companies are taking advantage of this provision of the Act. In fact, more companies have submitted private filings with the SEC than have submitted public ones – approximately 30 in total according to VentureWire.
And with no IPO coming to market since Facebook’s challenging debut, I’d imagine that a number of the companies who made their filings privately are glad they did so…