With the first anniversary of the Jumpstart Our Business Startups Act (JOBS Act) in the books, an assessment of its impact on issuers accessing the U.S. public equity market yields mixed results.
In March 2011, the U.S. Department of the Treasury convened the "Access to Capital Conference" to examine why emerging growth initial public offerings (IPOs) had declined over the prior 15 years. An IPO Task Force was formed to make recommendations to boost U.S. job creation by improving access to the public markets for emerging, high-growth companies.
The task force comprised 18 investment professionals, including venture capitalists, entrepreneurs, securities lawyers, academicians, Public investors, investment bankers and an accountant.
In October 2011, the IPO task Force delivered its plan to Treasury, Rebuilding the IPO On-Ramp. Congress incorporated amended recommendations by the IPO Task Force and passed the JOBS Act in March 2012. Signed into law on April 5, 2012, the act comprised a combination of immediately effective provisions as well as measures subject to further rulemaking. And though the act created a number of special accommodations for a newly designated group of businesses known as "emerging growth companies" (EGCs), only certain provisions have gained widespread acceptance.
The following focuses on key accounting and financial reporting provisions of the JOBS Act and the impact each provision has had on issuers accessing the U.S. IPO market.
What is an Emerging Growth Company?
An issuer that is an EGC as of the first day of its fiscal year continues to be an EGC until the earliest of:
* The last day of the fiscal year during which it had total annual gross revenues of $1 billion or more;
* The last day of the fiscal year following the fifth anniversary of the first sale of the issuer's common equity securities in an offering registered under the Securities Act of 1933;
* The date on which the issuer has issued more than $1 billion in non-convertible debt securities during the previous three-year period; or
* The date on which the issuer becomes a large accelerated filer (generally, a company with a public float of at least $700 million).
Key Accounting and Financial Reporting Provisions
* The ability to file confidentially with the SEC.
What this means for EGCs: Ordinarily, when a registration statement is submitted to the U.S. Securities and Exchange Commission (SEC) for review, it becomes immediately available to the public via the SEC's EDGAR website. An EGC whose common equity securities previously have not been sold in an offering registered under the Securities Act, however, may submit a draft Securities Act registration statement for confidential, nonpublic...