JOBS Act Discussion Then and Now: The Number One Law Private Placement Issuers and Investors Care About

Signed into law by President Obama in 2012, the Jumpstart Our Business Startups Act  (JOBS) empowers many private placement issuers to broadly advertise their securities offerings. The legislation also exempts many issuers from SEC registration requirements and increases their access to crowdfunding. Furthermore, lawmakers have tossed around the idea of an updated JOBS Act, called the JOBS Act 3.0.

Now let’s look at the JOBS Act and updated JOBS Act 3.0 legislation in more detail.

JOBS Act Background

Accredited investors are carefully screened and have to meet certain net worth or income requirements. Subsequently, the JOBS Act was enacted to reduce oversight and reporting requirements for a new category of issuers called emerging growth companies. To qualify as an emerging growth company, an issuer's stock must show less than $1 billion USD in total annual gross revenue for its most recently completed fiscal year.

Title II JOBS Act and Crowdfunding

Notably, these startups may raise up to $1 million USD through crowdfunding. In this case, many small investors participate and receive equity in return. That being said, successful crowdfunding offerings tend to rely more on Title II of the JOBS Act, with its broad solicitation opportunities alongside a requirement for vetted and verified accredited investors. JOBS Act Title II opened up a world of public advertising for startups. Another highlight of the JOBS Act is the expansion of Regulation A called Regulation A+. Under Regulation A+, exempt stock offerings may run up to $50 million USD in total.

With an overwhelming 406-4 vote in favor, a package of bills called the JOBS and Investor Confidence Act of 2018, also referred to as the JOBS Act 3.0, had passed the U.S. House of Representatives. To become law, however, the legislation would still need to pass the Senate and be signed by the President. The JOBS Act 3.0, as yet unpassed, actually includes thirty-two individual bills. We describe some of those individual bills below.

For instance, the Fair Investment Opportunities for Professional Experts Act is of particular interest to our readers because it would expand the accredited investor definition beyond high income or high net worth individuals or entities. The modernized definition would include people who have relevant education or experience in a particular field. This would allow financial advisers, as well as industry or medical professionals, to participate in private placement offerings relevant to their expertise.

Then, there's the Expanding Access to Capital for Rural Job Creators Act. Under this act, the annual report made by the SEC’s Advocate for Small Business Capital Formation would include a summary of "any unique issues encountered by rural area small businesses," as stated by PubCoCEO™.

Another JOBS Act 3.0 component, the Fostering Innovation Act of 2017, would extend the Sarbanes-Oxley Act exemption to certain emerging growth companies with low revenue. Currently, the exemption ends for these companies after five years.

Additionally, under the Encouraging Public Offerings Act of 2017, issuers could submit draft registration statements for initial public offerings (IPOs), as well as follow-on offerings within a year of an IPO, to the SEC to review confidentially before publicly filing. Furthermore, in a provision called “test-the-waters,” all companies would be allowed to gauge interest in their offerings before committing to an SEC registration exemption.

Another part of the JOBS Act 3.0, The Family Office Technical Correction Act, is of special interest to family offices and family clients because it would qualify them as accredited investors. For your information, section 275.202(a)(11)(G)-1 of title 17, Code of Federal Regulations, defines the terms “family office” and “family client.”

As evident by the overwhelming support from the House of Representatives and the constantly changing financial space, JOBS Act 3.0 is a necessary update that would benefit both issuers and investors.

Updated 5/5/2023

General solicitation is a useful method for companies to attract new investors without the high cost of an IPO. By using a Rule 506(c) exemption, companies can generally solicit funds and save on budget. Recently, the SEC introduced Rule 148, which allows entrepreneurs to communicate more widely about investment opportunities during "Demo Days". This new rule permits any meeting sponsored by certain entities, including incubators, accelerators, angel investor groups, nonprofits, state and local governments, instrumentalities of state and local governments, and universities and colleges. With these expanded opportunities and increased accredited investor criteria, there has never been a better time for private funds to grow.