Not to be confused with the American Jobs Act, the Jumpstart Our Business Startups (JOBS) Act was passed on April 5th, 2012 mainly to promote job creation by improving access to capital markets. Title I of the JOBS Act provided a mechanism for “emerging growth companies” to go public. These provisions are referred to as “the IPO (Initial Public Offering) On-Ramp.”
Some other key provisions of the JOBS Act: The first allows for the easier launch of startups through the use of crowdfunding, and the second permits companies seeking investment to do so via “general solicitation” - for example, social media.
Two years on, is the Act having the effect it was passed into law for? While there is some difference of opinion on the matter, many experts feel that the answer to this question is definitely Yes.
The most effective part of the Act appears to be the IPO on-ramp. Reports indicate that IPOs increased by 70% in 2014, with just over 100 companies filing to go public. Technology companies in particular are taking advantage of the Act, with IPOs enjoying their highest levels in over 10 years. A recent study by Latham & Watkins showed that nearly 9 out of 10 IPOs are by emerging growth companies. While there are undoubtedly other factors also contributing to these statistics, securities attorneys involved in these transactions cite approximately 74% as being a direct result of the simpler pre-filing disclosure regulations of the JOBS Act.
So What is the IPO On-Ramp?
Historically, many of America's most successful companies (think Apple) went public a few years after they got started. In the economic boom of the 1990s, over 80% of the IPOs were for companies less than five years old, and for offerings of less than $50 million.
In the last few years, however, there has been a drastic drop in that number, to the point where only 20% of companies go public within the first five years of their existence. Investors soon get tired of waiting and force the sale of the company so that they can recoup their investment. This has a negative impact on our economy as job creation is accelerated when companies go public.
The JOBS Act’s IPO on-ramp lowers the initial compliance costs of an IPO, meaning more companies are in a position to consider this route. Of course, many companies will still decide not to go public, but the JOBS Act at least gives them the option.
Almost 90% of investors in startups have accredited investor status. To see if you qualify, visit https://VerifyInvestor.com/how-to-order-self-investor-verification.