Today Congress passed the JOBS Act which contained provisions to temporarily ease regulations for emerging growth companies that pursue an initial public offering. The bill now goes to President Obama who is expected to sign it, making it law – effectively immediately.
The passage is a victory for venture-backed companies who for a decade have struggled with not only unpredictable market volatility but also very predictable regulatory burdens which, in many cases, delayed or prevented an IPO from taking place. It is an issue that the NVCA has been raising for a decade as well.
In 2005-2006, NVCA Board member Ted Schlein participated in the SEC Advisory Committee on Smaller Public Companies. That committee was formed to address the outcry from small companies struggling under the explosive costs of the new Sarbanes-Oxley mandate. After over a year of debate and examination, the committee ultimately made what became the first recommendation that scaled regulation be implemented. Unfortunately, those recommendations were never enacted, in large part because of the chorus of disapproval from the same groups (activist investors and labor unions) that most recently attacked the JOBS Act. In 2009, then NVCA Chairman Dixon Doll presented a Four Pillar Plan which sought to educate lawmakers and regulators about the continued difficulties for venture-backed companies trying to go public. In the midst of the financial meltdown gripping the country, those recommendations too were not acted upon. So the question today is – why now?
Fortunately for our companies and the U.S. economy, a confluence of forces made today's passage possible:
1) It's the economy. Statistics don't lie and the country continues to struggle with economic recovery. Job creation is top of mind for lawmakers, the Administration and the American public. Fact: Emerging growth companies that go public create jobs. Fact: The number of IPOs has fallen precipitously in the last decade. More IPOs means more U.S. jobs. While millions of jobs won't be created overnight, lawmakers recognized that, over the long term, easing the IPO process for fast growing companies can help reverse a trend that has sacrificed employment.
2) The IPO On-Ramp was a reasonable approach. The IPO On Ramp offered a reasonable approach to a significant problem. The IPO Task Force , which was led by former NVCA Board Chair Kate Mitchell and which included professionals from the capital markets ecosystem, made measured recommendations that served as the basis for the on-ramp provisions. It did not suggest a complete roll-back of important regulations. It requested a 5 year period of relief for companies after which time all existing regulations would still apply. Maintaining investor protections remained top of mind with the IPO Task Force and members of Congress, which was instrumental in garnering support for its passage.
3) Congress needed to demonstrate its value. Given the increased partisan rancor that has enveloped Congress – displayed painfully over the last several years throughout consideration of some of the nation's critical challenges - many Members of Congress were keen to champion a bipartisan bill that did not cost American taxpayers additional money but which would help stimulate the lackluster economy. Both Senators Schumer and Toomey – with support from Senators Crapo and Warner – along with Representatives Fincher and Carney – recognized the benefits of this legislation early on, and led the effort to move the bill through the Congress with both R's and D's attached to it.
4) Entrepreneurs weighed in. We can never underestimate the power of the entrepreneurial voice. Through the NVCA letter to the Senate signed by more than 700 company CEOs, CFOs and Founders to the AngelList that had thousands of supporters, the startup and venture capital communities let Congress know how important this bill was to the growth of their companies. Our legislators heard us loud and clear.
The NVCA would like to thank all of our members and supporters in this process, especially Kate Mitchell and the IPO Task Force for it thoughtfulness, commitment and work on the recommendations. It is a rare opportunity to be part of a process that sees a bill crafted, debated and passed in an expeditious and efficient manner. The JOBS Act will help emerging growth companies reach their potential and for that, we are so very proud to have played a part in its passage.