The JOBS Act 3.0 – The Investor Confidence Act
Lawmakers in the House of Representative are determined to deliver the new JOBS Act 3.0 and help jumpstart the IPO market by, among other things, lowering the bar for investors and reducing filing and compliance fees.
The new overarching bill, collectively called the JOBS and Investor Confidence Act of 2018, or the JOBS Act 3.0, is specifically designed to deliver easier access and paths for startups to get funding and companies to enter initial public offerings.
The goal behind this new act is to restore U.S. competitiveness and spur long-term economic growth.
The JOBS Act was initially signed into law in 2012 by then President Barack Obama to help small business secure funding. This far reaching law primarily eased securities laws and allowed equity crowdfunding.
Here are the main changes in the new legislation, which is expected to become final very soon.
The Investor Confidence Act
1. Establish legal certainty
The bill clarifies how entrepreneurs and angel investors can interact to discuss potential investments without “running afoul of security laws”. It reviews the SEC’s Regulation D rules – which govern how startups raise capital from investors. Furthermore, it adds exemptions to its prohibitions against general solicitation. Legal certainty will stimulate serious venture capital investments.
2. Expanding the definition of accredited investors
Currently, individuals with an annual income of more than $200,000 ($300,000 for couples filing jointly) for the past 2 years or a net worth in excess of $1 million qualify to become an accredited investor. The new JOBS Act 3.0 would expand the criteria to allow more people to invest in startups based on their “experience and expertise”. So the new accredited investors could be self qualified accredited investors.
3. Changes to rules for confidential IPOs
Under the new JOBS Act 3.0 plans to allow plans to further ease the ability to pursue so-called secret IPOs. The current laws let “an emerging growth company” or any person authorized to act on its behalf to file confidentially. The JOBS Act 3.0 proposes to strike the wording and change it to “an issuer” or any person authorized to act on its behalf, therefore widening the pool of companies that may be able to explore this option. This will ensure companies can plan their IPOs better. Companies can now enter dialogue with accredited investors without negatively impacting retail investors.
4. Lowering costs for IPOs
Initial Public Offerings compliance fees and regulatory costs for a company going public average $2.5 million. The JOBS Act 3.0 will create additional exceptions to certain rules and allow companies to delay various financial reporting requirements.
5. Creating venture exchanges
Congress members have argued that companies with 100,000 shares should not be regulated the same as those with 10 million shares. The legislation calls for “venture exchanges” in which companies with fewer outstanding shares would be listed in a single exchange. This will attract research and sales support for small issuers.