September 11, 2015
The JOBS Act at Work
Posted by Usha Rodrigues

The WSJ's front page observes that Tech Firms Are Notably Scarce in IPO Parade. Unlike last week's news, this one didn't surprise me one whit.  Here's why: the JOBS Act of 2012 was ballyhooed as a much-needed way to make it easier for companies to go public, rather than having to look to foreign markets or staying private to avoid the burdensome regulation epitomized by those dreaded words "Sarbanes-Oxley." 

But the thing is, the JOBS Act didn't just make it easier for firms to go public. Instead, it was more like enabling legislation in the securities field. Here's what Congress says to private companies in the JOBS Act.

Congress:  "Hey, do you want to go public? We'll make it easier!  You don't have to report as much and you can do a test run with the SEC and once you're public you don't have to report as much stuff as you used to" (Title I). 

Company: "Actually, we'd prefer to stay private."

Congress: "Oh, we can help you with that, too!  We used to force companies like Facebook to go public if they had too many shareholders, but we'll change that (Title V).  And now you can advertise to the general public (Title II) and raise more money (Title IV)!  Oh, and your brother-in-law that has the crazy idea of making tea out of lawn-clippings?  We'll let the general public invest in that, as long as they don't risk too much money and he wants $1 million or less...well, we'll let the SEC sort out the details on that one. (Title III, crowdfunding, final rules expected sometime this fall.  Maybe)" 

Company: "Cool, thanks.  So I think we're going to stay private because even with the JOBS Act the public market is kind of harsh."

Harsh is right.  Per the WSJ: Shares of Chinese e-commerce giant Alibaba Group Holding Ltd. dropped below their IPO price in August and are down nearly 39% this year. Shares of Twitter Inc. are down 23% this year and, at $27.71, aren’t much above their $26 IPO. Productivity-software company Box Inc.’s shares closed Thursday at $13.86, below their $14 IPO price... Zulily Inc., an online retailer that went public in 2013, agreed to be acquired by Liberty Interactive Corp. in August for $18.75 a share, after going public at $22."

Meanwhile, we have a multiplicity of "unicorns," privates companies worth over $1 billion. Paul Bard, director of research at Renaissance, is quoted in the article as saying “Private valuations…are supposed to factor in a discount for the added risk an investor is taking...Many of these private valuations are ignoring the fundamental risks involved in achieving their projections." 

The understatement of the year, Mr. Bard. Sounds like a bubble to me.  I'm not surprised that there aren't more tech IPOs.  Given how easy the JOBS Act made it to stay private, I'm surprised that there are any. 

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