Americas JOBS Act

What is jobs Act?

The IPO drought does not mean firms cannot raise capital. There are plenty of other ways for them to do so, from private equity and private placements to bank loans. But the public markets serve a unique purpose: they provide capital directly to young, growing firms, give early investors a means to cash out and enable ordinary investors to stake a claim in the fortunes of those firms. There are many reasons for the drought. One of the reason to blame is regulations. America has more than its fair share of those. From Sarbanes-Oxley to Dodd-Frank, policymakers have responded to crisis and scandal with ever more strictures on accounting, auditing, pay, governance and Wall Street research. Some of this was needed to make markets work better. By bolstering investors confidence in the marketplace, regulation can help companies raise capital. But too many new rules impose costs that exceed their benefits: the intensive review of internal controls required by Sarbanes-Oxley is one example among many. Bosses of listed firms gripe that they spend more time complying with rules than cooking up new products. More worryingly, firms that in previous decades might have gone public look

at the red tape and decide not do so. Start-ups used to dream of toppling incumbents; now they aim to sell themselves to Google or Apple. Creative destruction is muffled. Two cheers for the deregulators The JOBS Act would make it easier for young, growing companies to go public by releasing them from some of the auditing oversight requirements of the 2002 Sarbanes-Oxley Act. It would loosen the restrictions on communication between companies about to go public and investors, on underwriters research, and on the advertising of new share offerings. Such steps would reduce compliance costs while providing investors with more information. Alas, other parts of the law deprive investors of helpful disclosures. A young firm could release just two years of audited statements instead of three, and a private firm could avoid registering its shares with the Securities and Exchange Commission (which triggers broad disclosure requirements) until it has 2,000 shareholders, up from the current 500. This would allow far too many companies that are, de facto, publicly held to evade disclosure and, perversely, reduce the incentive to go public. The law also goes too far in waiving most registration requirements for firms that crowdfund, ie, raise small amounts of money from lots of investors over the internet). Crowdfunding is an efficient way for entrepreneurs to raise seed capital. But it is also a good way for hucksters to fleece suckers. The Senate wisely inserted modest disclosure requirements. More safeguards are needed, especially in the case of the brokers who sell the shares. The JOBS Act is not perfect. But it starts to cut the rules that cuff American capitalism and should thus be applauded. JOBS Act issue The provision, part of the bill passed by Congress and expected to be signed by President this week, would enable companies to submit confidential drafts of their initial-publicoffering documents to the Securities and Exchange Commission before they file publicly. Critics say that measure would allow a company like Groupon, which had well-publicized disagreements with the SEC over its accounting last year, to resolve such issues under the radar, without investors learning of them until later although still before any IPO. The JOBS Act eases a variety of accounting and disclosure rules for "emerging growth companies"those with less than $1 billion in annual revenue and $700 million in market capitalization that have been public for fewer than five years. Under the confidential-filing provision, emerging growth companies could file a first-draft version of their registration documents with the SEC without making them public immediately. Those confidential documents would have to be publicly released 21 days

before the company's "road show" in which it tries to persuade prospective large investors to buy its stock. The documents would be exempt from any Freedom of Information Act requests. The provision's supporters have indicated it would allow young companies to avoid disclosing potentially sensitive information to competitors and other parties early in the IPO process. For instance, Groupon had to change its accounting twice before the IPO in response to SEC concerns, under public scrutiny. The company initially used an unusual metric called "adjusted consolidated segment operating income," which excluded its marketing costs to land new subscribers. That enabled the company to show a profit even though it was generating losses under standard accounting rules. Groupon later scaled back its references to that measure after the SEC raised questions about it. Before its IPO, Groupon also revised the way it booked revenue from a gross figure to a net figure. Initially, the company counted as revenue all the money it took in from its daily-deal offers, but it changed that to deduct the portion of that amount that it shares with merchants. That slashed the company's reported 2010 revenue from $713.4 million to $312.9 million. JOBS Act and Cash Flows Money flow from crowdfunding

In crowdfunding, companies can raise small stakes from individual investors, either by offering their stock at their own Web sites, or through third-party intermediaries, most often a Web site. So the cost of raising fund will be less expensive. The cost of equity or capital will become lower

will be a relief to cash-strapped startups.